Materials breaking out, IT pulling back, energy weak

The All Ordinaries index was down 0.31% for the week ending 29 March 2019. The index ended the week 2.4% above its 200 DMA, finishing the week strongly, near the top of the weekly bar, but still tracking sideways and making no new progress.

We expect that the index will spend some time in a trading range around this level before it will be ready to show its hand as to the direction of the next move.

Of the 493 stocks currently comprising the index (and for which we collect data), 295 of these (60%) ended the week above their respective 100 DMAs, up from 55% of names at the end of last week.  Two hundred thirty-six stocks were up for the week, while 257 ended the week flat or down. Two hundred and forty-seven shares finished the week within 20% of their 52-week highs, with 75 of those within 5% of 52-week highs.

Energy

The Energy sector was particularly weak during the week dropping more than 4% in aggregate and resulting in the first down month since the new year following the exceptional performance of January and February.

A pullback of some magnitude was inevitable given the strength of the recent rally however it’s unclear whether the sector will now establish a trading range, with the February highs becoming the point of resistance or whether stocks in the sector will show enough demand to continue the uptrend that began in early 2016. October, November and December of 2018 certainly looked like a distinct change of character. However, only time will tell whether this will prove to be the case.

Energy sector weekly chart

Information Technology

During the week the Information Technology Sector pulled back to the highs reached in September 2018. The sector has been the standout over the last 12 months, and a pullback like this can only be considered healthy.

Weakness is being bought aggressively with demand for the leading names looking very strong. We expect that some consolidation of the recent gains will take place at this level; however, it would seem at this stage that this is likely to be just a stepping stone to new highs.

Information Technology sector weekly chart

Materials

The Materials sector was the standout performer during the week, with the sector appreciating 1.5% on a market cap weighted basis and showing a strong breakout from the most recent four-week pullback. The sector is showing considerable strength, following a more than 1-year long trading range that lasted much of 2018. The pullback was shallow and orderly indicating strong demand for stocks in the sector.

Gold miners and Iron Ore producers have led the sector, with the bigger names, including BHP, RIO, Fortescue and Newcrest all carrying their weight and acting well.

Materials sector weekly chart

BHP Group (BHP)

BHP has been in a strong uptrend since January 2016; however, the stock spent most of 2018 in a trading range. BHP broke out of this trading range in late January 2019 and except for a brief and shallow pullback has been a steady performer since then, with the stock up 18% over the last six months.

BHP weekly chart

RIO Tinto (RIO)

Not surprisingly RIOs chart looks very similar to that of BHP. The stock has been in an uptrend since January 2016 and spent most of 2018 in a trading range. The breakout from this trading range occurred in late January, followed by a brief and shallow 1-week pullback indicating significant demand for the stock. The stock was solid again last week signalling a continuation of the uptrend. RIO has appreciated 24% during the previous 6 months.

RIO weekly chart

Fortescue Metals (FMG)

FMGs chart looks distinctly different from those of RIO and BHP. While the stock was in an uptrend in 2016 similar to BHP and RIO, this was broken in February 2017 and followed by a two-year downtrend. This downtrend came to an end in late 2018, and since then the stock has been a terrific performer, appreciating 65% year to date. Last week the stock broke above the 2017 highs on a weekly closing basis for the first time since 2008.

Fortescue weekly chart

Newcrest Mining (NCM)

Newcrest is the largest gold producer listed on the ASX by market capitalisation and is a good general representation of the state of many of the individual gold names. The stock is now pulling back to the top of what was a multi-year trading range, having shown considerable demand over the six months to get there. The stock is up 32% over the last six months.

It now appears to be bouncing around the top of the range (or just above depending on how you define the point of resistance). The stock briefly broke out above $26 last week however swiftly fell back over the next two days. A sustained breakout above this range would be considered very favourable.

Newcreast weekly chart