Phat squiggly lines: Rising interest in 2022

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 started the year with a lot of volatility as markets grapple with the thematic of rising interest rates and the impact Omicron will have on global growth forecasts. On January 4, the first trading day for the year, the ASX 200 had its best day since October, rallying just shy of 2%, pushing the market within 0.5% of all-time highs. This was followed by a swift decline of 2.5% just two days later, signalling a short-term top is likely in place at key resistance around 7,620 points.

  1. Market now at 50-day moving average support at around 7,400
  2. Market has been range bound and in broader consolidation pattern since June 2021 after recovering strongly from the low reached during the pandemic
  3. Short term top in place at key resistance and near all-time highs around 7,630

From a technical standpoint, the market has been in a broad consolidation pattern since June 2021, trading between 7,180 and 7,630. It’s now pulled back to the 50-day moving average, which has been a key support level during this time. The ‘Santa Claus Rally’ played out again last year, with the market managing a healthy gain of around 3% in December. It’s typical for the market to give back some of these gains around mid-January after such a strong end to the year, so some profit-taking coming into play while investors get set for the new year isn’t surprising.

Stocks to watch

CSR forming bullish flag pattern

  1. Low reached in March 2020 during the COVID selloff, and bottom of flagpole
  2. Top of flagpole and key resistance level around $6.20
  3. Series of higher lows followed by short rallies, and base of flag
  4. Top of flag and resistance – looking for a break of this level which would trigger a buy signal

Building and materials supplier CSR (CSR.ASX) has had a strong recovery since the March 2020 COVID low, rallying more than 100% since then. Much like the ASX 200, CSR tends to find support around the 50-day moving average and has bounced off this level several times over the past couple of years. It has formed a number of ‘higher lows’ recently which is typically a bullish indicator, and is now retesting recent highs at around $6.15.

The stock is forming a ‘bullish flag’ pattern which is a bullish technical setup that can lead to an appreciation in share price. To form this pattern, a stock needs to have rallied recently and still be in an overall uptrend which forms the flagpole. It then needs to have made a series of higher lows followed by short rallies, which forms the flag. We’re watching closely for a break to the upside and for the stock to make another higher low if it fails at this attempt. There is no clear buy signal at present, but the pattern is shaping up to be positive and could lead to further upside in the upcoming days/weeks. One to keep an eye on.

PolyNovo’s US sales double vs PCP

  1.  Key support level held
  2. Downtrend and resistance
  3. Break of downtrend and resistance on good volume

PolyNovo Limited (PNV.ASX) makes and develops innovative medical devices for a number of applications, using their patented bioabsorbable polymer technology NovoSorb. PolyNovo has only one business segment being the development of the NovoSorb technology for use in a range of biodegradable medical devices.

Today they released first half FY22 trading results which showed sales in the US over the last quarter more than doubled, up 105% compared to the previous corresponding period (PCP) last year. This resulted in the stock rallying strongly yesterday.

From a technical perspective, the stock is now breaking out of a significant downtrend on strong volume and could signal a shift in investor mentality if it can maintain this momentum into the coming days.

Coupled with this, the stock is now bouncing strongly off a key support level strengthening the case of further upside in the near term.

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