Top ASX stocks to watch

Australia’s ASX index looks poised for further gains, as long as the ‘Remain’ camp can win the UK’s referendum on continued EU membership. Macquarie Group, BlueScope, Myob Group and BWP Trust have strong upside momentum.

Australian stock exchange building exterior
Source: Bloomberg

The ASX has bounced strongly off 5100 and there looks to be enough momentum to carry it back above 5300 again. The EU referendum vote in the UK will dominate trading this week, and we have seen a noticeable move in positioning towards the ‘Remain’ camp winning the vote rather than the ‘Leavers’. Were ‘Remain’ to win, the relief rally could be enough to take the ASX back above 5400.

The market internals for the ASX do seem to be pointing to further gains. Companies at new four-week lows have dropped dramatically, indicating sentiment in the index improved, which bodes well for the index this week.

ASX price chart

The future price-to-earnings (P/E) ratio can tell traders if the valuation of the ASX 200 is ‘expensive’ or ‘cheap’ relative to its long-run average. While this can be used to time reversals, it is best used in conjunction with other inputs like market internals, price action and technical analysis. The current level is 16.88.

12-month future earnings chart

50-day moving average: 63.3%

200-day moving average: 72.1%

The 50-day moving average collapsed last week, but the short-term nature of the sell-off has seen only a minor dip in the 200-day moving average.

Price movement chart

Four-week high: 6.5%

Four-week low: 10.0%

Four-week lows and highs have both fallen back, arguably making a move up look more likely than not.

Price chart
Week-on-week increaae in short positions
Week-on-week decrease in short positions

Trade of the week – Macquarie Group

Macquarie Group Ltd has definitely been a key beneficiary of the recent risk-on rally. The company has significant UK business and would certainly be impacted in the event of a Brexit vote winning at the ballot. The move in market expectations towards a ‘Remain’ win seems to be benefitting the stock.

Macquarie Group price chart

BlueScope

The risk-on rally and the renewed sell-off in the US dollar have clearly benefitted steel-maker BlueScope. The stock looks like it increasingly has the momentum to retest its mid-April high of A$7.00.

BlueScope price chart

Myob Group

Myob Group has now had four days of back-to-back gains and momentum increasingly looks to be behind the stock. On a technical level it has also broken through the Ichimoku cloud again, further indicating that it may be ready to retest A$3.50.

MYOB Group price chart

BWP Trust

A lot of the major property REITs in the ASX have gained over the past two sessions, but BWP Trust looks most primed for further gains. It has consolidated between A$3.60 and A$3.70, but a strong risk-on rally in markets could see break higher. 

BWP Trust price chart

SGM

SGM’s steady decline since mid-April looks set to continue. Sentiment in the stock continues to weaken, and a further drop towards A$6.00-A$6.60 seems perfectly feasible.

SGM price chart

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