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Top ASX stocks to watch

The Australian election has added to the uncertainty facing the country’s stock index. Stocks with positive momentum include Aconex, Seven Group Holdings and Select Harvests, while AOG and National Storage REIT has both sliding.

ASX
Source: Bloomberg

Australia’s ASX index whipsawed in the wake of the UK’s vote to leave the EU, but then managed to post four consecutive days of gains. However, the uncertainty the weekend’s Australian election has brought is likely to impact the current upward momentum in the ASX.

Global market sentiment is likely to be a bigger driver for the ASX than the elections, although the elections may result in some initial selling. If the ASX does manage to find some buying this week, then its first target would be regaining its pre-Brexit close of 5281. But there is a real risk that some of the post-Brexit ebullience disappears from markets this week and begins to weigh on them instead.

Aussie chart 1

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 P/E ratio is currently 16.1.

Aussie chart 2

Trade of the Week – Aconex (Buy)
Aconex had just had a big momentum rally until Brexit cut that short. But on Friday it closed above its pre-Brexit level and looks to have regained much of that momentum and is set to push higher.

Aussie chart 3

Seven Group Holdings (Buy)
Seven Group Holdings has exploded in the past two days of trading. Its revenue is dominated by its WesTrac companies, which own the rights to Caterpillar dealerships in Australia and China. And the post-Brexit speculation on further fiscal stimulus globally may be helping these units.

Aussie chart 4

Select Harvests (Buy)
Select Harvests saw a big rally in April and May cut short by Brexit concerns. But whether Brexit will ultimately have a major effect on global almond prices is an open question. Momentum has been coming back into the stock all last week and a retest of its June highs seems likely. 

Aussie chart 5

AOG (Sell)
AOG has not really seen much of a bounce after Brexit. And the major selloff seems to have further soured investor sentiment in the stock. There’s a good chance the stock falls back to its March low of A$3.08.

Aussie chart 6

National Storage REIT (Sell)
National Storage REIT has seen its fortunes continue to slide in the wake of Brexit and could be set to push back towards A$1.55 where it was trading at the start of April.

Aussie chart 7

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