Phat squiggly lines: Finding true north

Phat squiggly lines is where pro traders get a technical take on the stock markets – with Kieran Neeson, Opentrader's in-house trading guru.

Market overview

The ASX 200 (XJO.ASX) has had a strong recovery over the past week after falling by as much as 11% in January. After yesterday's 1% mover higher, the market has now rallied 5.9% since the low reached last month and is forming a V-shaped recovery. The market was spurred by Macquarie Bank (MGQ.ASX) which released a record profit result, while major miners BHP (BHP.ASX), Rio Tinto (RIO.ASX), and Fortescue Metals (FMG.ASX) reached five-month highs. Travel stocks such as Flight Center (FLT.ASX), Webjet (WEB.ASX), and Hello World Travel (HLO.ASX) all rejoiced at news the government would be letting international travellers back in from later this month, each rallying more than 10% over the past week.

From a technical standpoint, the market entered a correction in January but managed to find strong support at around 6,800. It's recovered well and is now at a strong resistance point, so some consolidation at these levels wouldn’t surprise although a break higher could see the market make a full recovery and retest 7,600.

  1. Short-term resistance in place around recent high of 7,186
 2. Recent low and support at 6,800
 3. Recent high around 7,620

Stocks to watch

Magellan Financial (MFG.ASX) 

  1. Stock has reached long term support not seen since 2015
 2. Stock trending lower
 3. RSI trending higher causing divergence between the two

Magellan Financial is an Australian funds manager that has, until recently, been run by legendary investment manager Hamish Douglass. The stock (and Hamish for that matter) have been in the news for all the wrong reasons of late which has led to a decline in share price of approximately 69%. The stock dropped by 11% yesterday after news broke that Douglass would be taking a leave of absence, yet rallied over 7% yesterday. 

One thing markets and individual stocks don’t like is uncertainty, which is the only certain thing plaguing the distressed fund manager at present. While the stock is clearly being impacted by fundamental factors (which typically throws technical analysis out the window!) there is clear divergence between the stock and the RSI (moving in opposite directions) and when this happens, the underlying stock typically realigns with the RSI.

In the case of Magellan, this would suggest the stock is primed for a short-term bounce before the market figures out the impact all of the recent negative news will have to its bottom line and future earnings. Not for the faint-hearted, but it’s starting to look interesting at these levels.

Webjet (WEB.ASX)

  1. Trend support since low reached during pandemic
 2. Short-term resistance
 3. Retest of recent high looking around $6.70 looks likely in the near

Webjet is one of Australia’s leading online travel agents that has been crucified since the pandemic began in 2020, falling by more than 77% in just two months (Feb 2020–April 2020). It's managed to stage a solid recovery since rallying more than 155% and is now looking to continue its road to recovery after the government announced international travel will resume later this month.

From a technical standpoint, the stock has reached short-term resistance but looks likely to push through in the near term and retest recent highs of around $6.70, or approximately 15% higher. The flurry of good news the tourism sector has received may just be enough to give the stock what it needs to gather some momentum heading into 2022. So for those looking for ways to play the reopening of the domestic economy, this should be on the radar.

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Hold on a sec! You should consider whether any advice here is right for you. We don’t accept any responsibility for the accuracy of any information, opinions, or predictions we’ve provided, and we certainly haven’t taken your personal financial situation into account. Just a heads-up.

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