21/06 Week, page-324

Weekly Wrap. Week ended 25/6/21. Oz Market lags U.S.

XJO Weekly Chart:

XJO down -0.83% this week, while the American SP500 was up +2.74%. XJO remains in a strong up-trend, but clouds are beginning to gather.

Short-term Stochastic (5.3.3) and long-term Stochastic (30.10.10) are overbought and turning down. This suggests we may see some downside movement in the index sometime in the medium term.

XJO Daily Chart

Monday's big down day caused havoc for our market, it is still trying to recover. No clear direction has been determined with the XJO remaining within the range of Monday's candle. Friday in America was positive, so we might follow, but I doubt that will resolve the issue.

One-Week Sector Changes.

The big drag on the market this week has been Financials (xxj). XEJ down -2.66%. XXJ is the largest sector in our market and it is difficult for our market to show a positive return if XXJ is down strongly.

Two weeks ago, I set out a case that we are in a "normal" inflationary environment. This week's action in sectors have produced results in line with that case: Information Technology (XIJ) up +3.1%, Property (XPJ) up +1.33%, and Financials (XXJ) down -2.66%. XIJ is now very overbought so we might see some settling back in XIJ.

Bonds/Stocks Ratio:

The Bonds/Stocks Ratio rose a little this week with the fall in Stocks, but the chart still shows that Stocks are preferred.

While the indicator is below the "brink" line, stocks are preferred over bonds.

This Ratio is useful as a long-term trend indicator and as a guide to allocations between stocks and bonds. Increase allocations to bonds and reduce allocations to stocks if the Ratio goes above the "Brink" line on the chart.

Net HewHighs-NewLows.

This Net NH-NL is a measure of breadth followed by traders.

The 10-Day MA of NH-NL continues to fall, so strength, although positive, is beginning to weaken.

That's another "cloud" on the horizon.

Cumulative NewHighs-NewLows

Net NH-NL is used to construct the Cumulative NH-NL Chart:

The Cum NH-NL Line has pulled up sharply from its 10-Day Moving Average. For the long-term investor, this says to hold on to current investments as the trend remains long-term bullish.

If the Cum NH-NL Line drops below the 10-Day MA - then it's time to take defensive action.

Breadth, % of ASX100 stocks above 200-Day MA.

The % of ASX100 stocks above the 200-Day MA fell this week from 74% to 71%. It remains in bullish territory. If it falls below 50% (as it did in late Feb. 2020 before the Covid bear market), then take defensive action

% of ASX100 stocks above the 50-Day MA fell from 76%% to 69%.

% of ASX100 stocks above the 10-Day MA fell from from 59% to 53%.

Those falls are in line with the pull-back in the XJO.

Conclusion:

XJO remains in a medium-term and long-term up-trend. Continue to hold while those trends are maintained. But - don't be complacent. These conditions can change quickly, and the above suggests we could see a change in the near future.