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The weekly ASX momentum report

The weekly ASX momentum report looks at where the market is moving and the top stocks that are showing up in our different screens. This week Healthscope (HSO), Henderson Group (HGG) and Flight Centre (FLT) are all looking interesting to us for short-term trades.

Data
Source: Bloomberg

Momentum has started to come out of the ASX’s uptrend of late. The index has been reluctant to break below 5300, but 5400 has been a level of strong resistance as well. The ASX has been increasingly rangebound between 5300 and 5400. The 20-day moving average has continued to provide support to the index, but the breathing space between it and 5400 has continued to narrow.

The MACD momentum indicator turned negative on 19 May, and everyone seems to be waiting for a close below the 20-day moving average now to lead to a sharp pullback in the index.

ASX price

Valuations in the ASX continue at concerning levels. The forward price-to-earnings ratio reached 17.5 last week, a full 1.7 standard deviations above the long-term moving average. This means either prices are dramatically overestimating future earnings, or future earnings are dramatically underestimating growth.

Although a big driver of this could be discrepancies between more cautious commodity price forecasts in earnings estimates and stock prices that have already locked in US$65 a barrel for oil.

ASX valuations

Short positions have grown most noticeably in Dexus Property Group (DXS) possibly reflecting investor disappointment at its failed takeover of the Investa Office Fund and also increasing concern with the frothy-looking Sydney commercial real estate market. The increases in shorts in API, Saracen Mineral Holdings Ltd and Healthscope Ltd all look to be driven by a growing sense, for some investors, that price has been getting ahead of fundamentals.

Stock Ticker Week on week % increase in short positions
DXS Dexus 29.8
API Australian Pharmaceuticals 25.4
SAR Saracen Mineral 14.4
HSO Healthscope 11.6
OFX Ozforex Group 11.1
SUN Suncorp 10.7
MFG Magellan Financial 9.2
ORA Orora 9.1
MPL Medibank 8.2
SIP Sigma Pharmaceuticals 7.1

 

Despite the big rally seen in Link Administration Holdings Pty Limited (LNK) of late, there seems to be increasing belief in the rally as short positions continue to peel off. FlexiGroup Ltd has seen some noticeable buying by insiders over the past few months, indicating they believe the sell-off to be overdone.

Further declines in short positions in the stock appear to be confirming these conclusions.

Stock Ticker Week on week % decrease in short positions
LNK Link Administration -19.8
FXL FlexiGroup -11.0
SGP Stockland -10.7
BXB Brambles -9.9
LLC Lendlease -9.9
TCL Transurban -9.5
DLX DuluxGroup -9.0
CWN Crown Resorts -7.4
TLS Telstra -6.8
BPT Beach Energy -6.7

 

News that Healthscope Ltd (HSO) completed a US$300 million private placement helped the stock gain 1.7% yesterday. It continues in a very strong uptrend supported by the 20-day moving average and looks to be targeting its February 2015 high of A$3.11. 

Healthscope

Henderson Group (HGG) surged 4.6% on Friday, but with more than 70% of its revenues coming from the UK, it looks set to be a key beneficiary on the ASX should the UK vote to remain in the EU. A$5.6 and A$6.4 look like the next key resistance levels. 

Henderson

The massive volume seen in the Flight Centre (FLT) sell-off yesterday after it downgraded earnings did provoke a 'hammer reversal pattern' in the daily candle for that session. There are clearly some who believe the sell-off is overdone and are keen to buy the stock at this level.

Flight centre

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