ASX All Ordinaries Index (.AORD) Market Round-Up

Last week, ASX All-Ordinaries Index (.AORD) remained in the positive territory and settled at 7078.90 with a gain of ~1.32 percent for the week ending January 22, 2021. The index managed to move up despite mixed events such as Westpac-Melbourne Institute Index of Consumer Sentiment that declined by 4.5% to 107 in January 2021 from 112 in December 2020. Meanwhile, Australian employment change data supported the market sentiments. According to the Australian Bureau of Statistics (ABS), the total employed people increased in December by 50,000 to 12,910,800 compared to 12,860,700 in November 2020. In addition, the unemployment rate also decreased in December 2020 to 6.6% from 6.8% in the prior month. As per technical indicators, prices are still reflecting a golden positive crossover between the 21-period SMA and 50-period SMA indicating a bullish trend. The index is getting an immediate resistance at 7290 level on a weekly chart that is near to the index's recent high level.

Prices are moving steadily upward and may test its 52-week high in the coming weeks considering improving Australian GDP and growing employment rate. The upcoming events that may impact the market sentiments include Australian Consumer Price Index quarterly data, Australian International trade price index, and US GDP numbers released on a quarterly basis.

Global Markets Wrap-Up 

Wall Street traded in a positive direction last week when the newly elected US president Joe Biden took control from Donald Trump. S&P 500 settled at 3841.47 with an overall weekly gain of ~1.94 percent while Dow Jones Industrial Average settled at 30996.98 with an overall weekly gain of ~0.59 percent for the week ending January 22, 2021.

Meanwhile, US President Mr. Joe Biden urged US congress to pass its largest stimulus package of $1.9 trillion to aid smooth recovery from the pandemic. The US markets have reacted positively to the data released by the US Department of Labour for the US claims for jobless benefits that decreased last week to 900,000 from 926,000 the prior week. Few upcoming events that need a close watch include US Quarterly GDP data and unemployment claims data.

Having understood the US market performance over the past one week, taking cues from major global news, and based on our technical analysis of ASX All-Ordinaries Index (.AORD) for the upcoming week, now let us have a look at the two ASX listed stock picks from the technical standpoint. Noted below are our recommendations based on generic insights, entry price, target prices, and stop-loss for Estia Health Ltd. (ASX: EHE) and Meridian Energy Ltd. (ASX: MEZ) for the next 2-4 weeks duration.

Estia Health Ltd.

Price Action Analysis (on the Weekly Chart)

EHE’s stock price broke the downward trendline resistance of AUD 1.63 on November 15, 2020 and sustaining above the downward trendline since the past 3 months. Recently, prices broke another immediate resistance level of AUD 1.865 and hovering around the breakout level. Prices are currently catching upside momentum from the support levels and may test an important resistance level of AUD 2.25 in the 2-4 weeks duration.

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI is trading at ~59 levels, indicating a positive trend in the stock. The volume appears to be supportive of the stock’s price action and indicates the bullish trend. The CMP is above the 21-period and 50-period SMA which indicates prices are trading in an upward trajectory.

Financial Summary: 

Summary of the Key Financial Metrics for the past four years for Estia Health Ltd. is as follows:

General Recommendation: 

As per the above-mentioned price action and technical indicators analysis, we can conclude that Estia Health Ltd. is looking technically well-placed on the chart and we have a ‘Speculative Buy’ rating on the stock. Investment decision should be made depending on an investor’s appetite on upside potential, risks and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report.  Summary of our recommendation is as follows:

Meridian Energy Ltd. 

Meridian Energy Limited (ASX: MEZ) is a renewable energy company engaged in the business of electricity generation, and the sale of complementary products and services. The Company operates through wholesale, retail, and international segments and supplies electricity to power homes, businesses and farms. Below are the key price indicators for the stock: -

Price Action Analysis (on the Weekly Chart)

MEZ's prices took sharp upside movement last week after taking support from upward trend line and hovering in a buy territory since more than 3 months. Prices formed a Hammer candlestick (bullish reversal) pattern from lower levels last week. Now the next important resistance level appears to be at AUD 8.64 and prices may test that level in the 2-4 weeks duration.

Technical Indicators Analysis (On the Weekly Chart)

On the weekly chart, RSI is trading at ~68 levels indicating a bullish momentum in the prices. The increasing volume trend along with an increase in the stock’s price action further indicates the bullish trend. The CMP is above the 21-period SMA and 50-period SMA, further providing strength to the prices.

Financial Summary:

Summary of the Key Financial Metrics for the past four years for Meridian Energy Ltd. is as follows:

General Recommendation:

As per the above-mentioned price action and technical indicators analysis, we can conclude that Meridian Energy Ltd. is looking technically well-placed on the chart and we have a ‘Buy’ rating on the stock. Investment decision should be made depending on an investor’s appetite on upside potential, risks and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report. The summary of our recommendation is as follows: 

Upcoming Major Global Economic Events

Market events occur on a day-to-day basis depending on the frequency of the data and generally include update on employment, inflation, GDP, consumer sentiments, etc. Noted below are the upcoming week's major global economic events that could impact the ASX All-Ordinaries Index and listed stocks’ prices:

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.60:1.00), however, returns are generated within 2-4 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within short investment duration. Investment recommendations provided in this report are solely based on technical parameters, and fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, and social and political instability risks etc.

Entry Price: For the given recommendation(s), Entry Price is assumed be at or above a certain level. However, a slight deviation on either side in the ‘Entry Price’ can be considered depending upon the potential expected or indicated.

Note: How to Read the Charts?

The Green colour line reflects the 21-period moving average while the red line indicates the 50-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The Black colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume and we consider stocks with greater than or equal to 500,000 volumes as more liquid. Liquidity in stocks helps in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Risk Reward Ratio: Risk reward ratio is the difference between an entry point to a stop loss and profit level. We suggest ~60% Stop Loss of the Target 1 from the entry point.

A trailing stop-loss is a modification of stop-loss in case of favourable movement in the price to protect the gains. We suggest Investors to Trail the Stop-Loss as per the aforementioned levels if the stock price achieves more than 50% of the Target 1. Investors should consider exiting from the position as per the Trailing Stop-Loss level if the price starts moving downwards after achieving more than 50% of the Target 1.

The reference date for all price data, volumes, technical indicators, support, and resistance levels is January 25, 2021.

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

AUD: Australian Dollar

RSI: Relative Strength Index 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any stock evaluation. The above are illustrative analytical factors used for evaluating the stocks; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.

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