We continue to watch the XJO consolidate in a tight band that has been in place since May this year.
This chart pattern is known as a “pennant” formation.
The chart below illustrates the lower high formation and the likelihood of a break to the downside.
XJO
Amcor and Caltex are now at price levels where we’re buying the stock and selling covered calls into June 2018.
These are income trades as the payment of the Feb/Mar dividends, combined with the call income, is generating in excess of 10% cash flow whilst allowing for moderate capital growth.
We feel both Sonic and Ramsey Healthcare are now reaching oversold price levels.
Our Algo Engine has flagged the higher low structure in MFG, BTT, SUN and MQG.
Traders may want to take a closer look at these names and place sell stops below the low formed in the past few trading sessions.
Our Algo Engine has triggered recent buy signals in SHL and RHC, we feel both of these names are now trading into an oversold price range and buying support will soon develop.
We’re now watching the price structure in energy related names as we feel Iran’s ambitions in the Middle East may develop into a flash-point to greater confrontation.
The standoff between Qatar and the rest of the Gulf Cooperation Council continues and should a conflict involving Iran occur, the risk to crude oil supply is significant.
If there is a disruption of crude oil from Iran and Iraq, the oil market goes from balanced, which it is now, to a shortfall in supply.
The graph below illustrates the potential for demand to begin outpacing current production.
RIO is likely to free up additional capital through the proceeds from the complete exit of coal and high cost aluminium smelting.
We estimate that this could raise more than $7.5 billion, potentially more than doubling shareholder cash returns in FY19
Recent sentiment around iron-ore and aluminium have helped drive RIO’s share price. We consider RIO near the top end of the valuation range.
However the share price should remain well supported, and when complimented with a covered call, we’re delivering 12% annualised cash flow.
FY 18 EBIT forecast of $9.8 billion, EPS $4.50 and DPS $2.45, places the stock on a forward yield of 4%.
Rio Tinto
On the 16th of August our Algo Engine triggered a sell signal in BEN at $12.50.
The current price action is a counter-trend bounce within a protracted downtrend.
The $11.75 area provides another opportunity to consider the short side of Bendigo Bank.
BEN
Keep Woolworths on your radar as we’re likely to see an exhaustion to the current selling pressure and a bounce higher.
Woolworths
Our Algo Engine triggered a buy signal in SHL near the recent low. We continue to see a buy-side opportunity here at $21.00
TAH has bounced from the $4.05 level highlighted in last weeks blog post and is now moving high, towards our $4.50 target.
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