Gold back in favour as Energy breaks down

The All Ordinaries index appeared to hold the breakout of the previous week with a relatively minor pullback during the week of 0.82% and a close above the new level of support. The tail at the level of support on Friday indicates there was demand at this level, however as we see today, this demand has all but disappeared, and the index looks set for a correction, which could take it back into the lows of the previous trading range.

Of the 491 stocks currently comprising the index (and for which we collect data), 279 of these (57%) ended the week above their respective 100 DMAs. This figure has turned down after peaking at 60% two weeks ago. Two hundred and twenty-eight stocks were up for the week, while 262 ended the week flat or down. Two hundred and fifty-one shares finished the week within 20% of their 52-week highs, with 79 of those within 5% of 52-week highs.

Energy, Real Estate and Consumer Staples were the weakest sectors during the week, each declining more than 2%. On the other hand, Communications Services was the only sector to put in a positive performance during the week while the Material sector was mostly flat.

Energy

The Energy sector is looking particularly weak, having broken out to the downside of a 15-week trading range.

Looking at some of the more prominent names in the Energy sector, it becomes clearer what is driving this weakness. A number of these stocks have held trading ranges since early February following a sharp recovery out of the December lows. However, these trading ranges now appear to be faltering.

Oil Search (OSH)

Oil Search fell below support at the end of April however spent most of May trying to bounce back into the range. The distribution was confirmed last week with a final rejection at the level of resistance which was previously the base of the trading range.

Origin Energy (ORG)

Origin Energy’s chart looks very similar to that of Oil Search, except tracking a week or two behind – a recovery from the December 2018 lows followed by a trading range that began in mid-February.

There have been a couple of tests of the level of support, an upthrust through the resistance level that quickly failed, followed by a fall below support. If demand does not appear at this level, we should expect a further decline.

Santos (STO)

Santos looks similar again. A trading range that began to take shape in February is showing signs that it might well be a distribution. In which case, we could expect further declines in the stock price, which could potentially become a part of a broader trading range, with the stock testing the December lows.

Beach Petroleum (BPT)

Finally, Beach, which looks strikingly similar again. Not much to add here, except maybe for the fact that the trading range began a few weeks later, with the stock continuing to push higher through the end of February before settling into a range. This trading range, like the ones discussed above, is now under threat.

Gold

The AUD gold price looks to have finally broken out of the trading range that it has been in for most of the year. Similarly, the USD gold price also put in a busy week with demand for the safe-haven asset pushing the price above $1,300 signalling a potential test of the $1,350 resistance level.

Gold-related stocks in Australia have shown similar strength over the last few weeks. A tour of the most important gold-related names in Australia is instructive mainly because they’re all telling the same story.

Newcrest Mining (NCM)

Finally broke out of a long-term trading range, which it had been in since mid-2016.  

Evolution Mining (EVN)

The stock moved forcefully back to the top of its trading range. A breakout above $4 would be very bullish.

Northern Star (NST)

Similarly, the stock has moved to the top of its trading range and is threatening to break above this level.

Saracen (SAR)  

Saracen’s chart has a very similar looking profile to those shown above. The stock has moved firmly to the top of its trading range and is showing signs of strong demand at and above this level.

Alacer Gold (AQG)

There is nothing to add here. The chart says it all – strong demand at these levels supporting a potential new advance.