MoneyTechs: Don't go full bear after the porridge has gone

MoneyTechs is Stockhead’s regular technical deep dive into some of the ASX stocks, sectors and trends of the moment with devout technical analyst Michael Gable, the Managing Director and Founder of Fairmont Equities.

Before we begin…

First up, you’ll want to be across Michael’s investment model which is a melange of both technical and fundamental analysis.

Then there’s his rules of engagement:

We are active.

We cut positions quickly if they head the wrong way.

We employ rules-based investing which takes the emotion out of our decisions.

We don’t fall in love with a company. If your threshold reaches a certain level, we will call you and advise you to sell it.

We use ‘trailing stops’ to help us stay in winning positions for as long as possible.

We are not day traders.

We are not “buy and hold”.

We view ourselves as active investors who concentrate on the medium term. That is, we don’t want to be in and out every day.

We also don’t believe that buying a company today and closing your eyes for a few years will grow your wealth.

The world changes rapidly and you need to adjust your portfolio accordingly. Today’s market darling is next year’s disaster. Our average holding is in the order of a few months to several months, depending if it’s a core stock or a trading opportunity.

Entry levels are crucial and it is where money is made. Timing is everything. This means you need to pay attention to what price action is telling you.

“This is where a strong understanding of technical analysis is necessary,” he adds.

What the technicals are saying this week

So, let’s get down to brass tacks.

Michael says share markets here in and the US continue to look bullish and he still remains of the view that we will see a rally into the end of the year.

“An interesting development last week was the moves in oil. After falling for a few weeks by nearly 15%, we then saw a 5% decline within one day to bring the oil price near the lower end of its yearly range.”

The reaction to the move by many commentators and analysts is interesting, Michael says.

“Everyone seemed to turn bearish. But it was a classic example of people turning bearish after the worst has already happened.

“When you get a big move down after a large decline, then usually that is a sign of capitulation and a low. That seems to be the case here with the oil price bouncing strongly in the past two days.”

“As a result, we have a chart of Woodside which is worth a moment’s study.”

Michael says that along the same theme, the uranium stocks are starting to move again.

“Also doing well in the energy space is uranium, surging this week as the price of yellow cake extended its extraordinary 2023.

“Paladin gained 4.00% to $1.04, Bannerman Energy added 3.69% to $2.81, and Deep Yellow added 2.95% to $1.22. We’re partial right now to both Bannerman and Paladin Energy.”

3 instant ASX energy opportunities

Bannerman Energy (ASX:BMN): Breaking out of its bull flag

Way back in July, Shaw and Partners was out front of the uranium price surge, saying the price action has a lot of legs – with spot uranium likely to reach and exceed US$80/lb over the next two years.

There’s not been huge coverage of BMN, and at the time Shaw said that the overall ‘limitations on transmission, batteries and firming capacity means governments will realise current investment in renewables will not meet decarbonisation objectives.’

“Based upon such factors as uranium price leverage, underlying quality and project lifecycle phase, Shaw and Partners’ preferred exposures from stocks under coverage are Paladin Energy, Silex Systems and Lotus Resources.”

However while Bannerman Energy is the most leveraged play to the uranium price under the broker’s coverage, BMN’s 95%-owned open pit Etango-8 project in Namibia is ‘lower grade but higher volume’ compared to its peers. The broker Upgraded BMN to Buy from Hold, with a target price of $3.20.

Michael says Fairmont noted the buying opportunity for BMN back on August 8 when it was trading at $1.66.

“After rallying to nearly $3.00 by the end of September, it then spent several weeks correcting the move.”

“We can now see that this corrective move resembles a bull flag (diagonal blue lines). The stock is now breaking out of this bull flag (circled) on good volume.

“This means we have another buying opportunity as we expect the shares to now continue their recent uptrend.”

Paladin Energy (ASX:PDN): On the move again

At the end of October, Paladin reported in its quarterly update that Langer Heinrich is 80% complete for restart, on time and on budget, and the company is well capitalised.

Paladin has also just moved to 100% ownership of the Michelin Uranium Project in Labrador, Canada and according to the brokers at Shaw and Partners, this now clears the way for Paladin to advance the project.

Shaw says they expect PDN to move pretty quickly on this.

Shaw says PDN ‘is the premium and most liquid name in the sector’ and remains the broker’s preferred exposure to an improving uranium market. The Rating is a Buy and Shaw retains its $1.15 price target.

Michael says, ‘we looked at the longer-term chart of PDN in September and noted that it looked bullish and was set for a multi-month rally, although it was likely to dip first in the short term.’

“That short-term dip appears to be over and we have a new buying opportunity. The shares spent some time cooling off, forming a double bottom (arrows).

“It then gapped up to leave the recent range, which was the first sign that it was on the move again. It found some short-term resistance, but it is likely to move beyond that to prove that it is on the way back up.

“If that is the case, then traders should consider that as the buy signal and PDN should then move to new highs for the year.”

Woodside Energy Group (ASX:WDS): A clear reversal

On Tuesday, the brokers at Macquarie Bank lowered the profit outlook for WDS after significantly bumping depreciation and amortisation for the company’s Sangomar and Trion projects to fully reflect write-off of initial investment over proven reserve production lives – which is eight years for Sangomar, and 13 for Trion.

The broker has retained its Neutral rating for WDS and the $32.00 price target, but has subsequently lowered the dividend outlook.

MQG adds that they expect more ‘material declines’ in production at Woodside’s North West Shelf offshore project.

However, Michael says the recent pullback in WDS “accelerated in the past few weeks which saw the stock become oversold and it retested the March low.”

“On cue, we got a buy signal on the RSI and a spike in volumes off the low.

“WDS gapped up yesterday and we now have a clear reversal in the stock. WDS tends to bounce in a V-shape so a recovery from here should be swift.

“Current levels are a buying opportunity.”

The views, information, or opinions expressed in the interview in this article are solely those of the writer and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.