Market was down a bit on the week after a poor performance on Thursday. Market structure is favouring the bears. Appetite for Risk is dropping.
INDICES PERFORMANCE – YEAR TO DATE
XAO: +2.84%. Eight of ten S&P Sectors are Up.
Best:
Energy +7.35% Industrials +5.59% Materials +4.66%
Worst:
Health -2.96% Cons.Staples -0.6% Info.Tech. +0.04%
Risk:
50-Leaders +1.68%, Small Ords +7.54%. Risk Appetite – Very High
Gold Miners: +10.1%
Property Trusts: +4.2%
Risk Appetite since the beginning of the year has been very high, but comparing to the one-week performance (previous chart), that seems to be coming to an end. If it is, the market will see more downside.
MONTHLY CHART – XJO
The Index remains in bear territory: below the 10 Month Exponential Moving Average. The large symmetrical triangle might provide further clues once the market breaks out of its confines.
The chart is currently in a very narrow range – that could end by the end of the month.
The chart is currently at 4195.9.3. The monthly 10EMA is at 4292.8.
The chart has been in a volatile sideways movement for about 6-Months. That volatility is slowly decreasing.
Even if the 10MEMA gets broken to the upside, the chart still needs to break above the oblique down trend line from the 2007 high.
Long term investors should remain cautious and out of this market.
WEEKLY CHART – XJO
This chart remains in limbo. The previous week’s reversal candle played out this week with the index falling through horizontal support. The chart remains within the symmetrical triangle.
Momentum indicators all weakened a little this week. If they continue to weaken and the lower oblique support line is broken to the down side, this will be a medium term sell signal.
The chart needs the following: a solid break above the 30-Week Moving Average, a new weekly high, and a break above the oblique resistance line. In the meantime, medium/long-term investors should be patient until direction is clear.
DAILY CHART – XJO
Thursday’s action completed a double top. Horizontal support now lies around 4140. That’s a level the market has visited many times over the past six months. A bounce off that would be positive, but serious resistance lies over head.
While resistance at around 4300-4350 holds and the 15-Day MA remains below the 150-Day MA, this market remains vulnerable.
Medium to long term investors should, in my opinion, remain cautious until major overhead resistance is broken to the upside (4300-4350 zone).
Short term trend: down.
AUD/JPY – WEEKLY
The AUD/JPY has been up seven weeks in a row. The last long candle suggests exhaustion in the near future. That type of extreme rise at the end of a trend is unsustainable. But – until it stops – the trend is up.
Surprisingly, the weakness in our share market over the past two weeks hasn’t been reflected in the JPY. So, despite money flowing into the country, our stock market has fallen. What happens if the in-flow stops? Sounds bearish to me.
Momentum indicators are all in overbought territory. They can stay there for some time on the weekly chart.
The AUD/JPY is watched carefully by traders. It provides a clue as to cash flows into and out of Australia (and thus into the stock market). The currency pair is used heavily by speculators in Japan capitalising on interest rate differentials between Japan and Australia. A rising JPY accelerates the profits made.
DOW 30 MONTHLY
Knocking on Heaven’s Door. What’s St Peter going to say?
The past week, the Dow was marginally above the May, 2011 high.
Dow Monthly is above the 10-Month Moving Average. That’s a positive. The medium term trend from October remains intact.
Stochastic and CCI are both reading overbought. Indicators are all showing potential negative divergences, but on this chart may take weeks or months to play out.
Falling volume is not confirming the rise in the index. Falling demand eventually leads to a falling market.
Remember – readings for this chart are only confirmed at the end of the month.
DOW 30 – DAILY
Early in the week, the Dow Industrials broke below the rising wedge. It is now testing that from the underside. A fall back would be bearish. A break above the wedge would be bullish.
Momentum indicators are once again turned up with Stochastic and CCI overbought.
At this stage the short term trend is up and the medium term trend remains up.
DOW TRANSPORTS – DAILY
Probably the oldest form of codified technical analysis is Dow Theory. There are six parts to it, but basically, the Dow Industrials and the Dow Transports must confirm. Dow Industrials are now at multi-year highs. Dow Transports are still well below 2011 highs and have turned down. Transports tend to lead both up and down. A classic non-confirmation of the new high level on the Dow Industrials. That’s a concern.
Another important part of Dow Theory is volume. A rise in the index should be confirmed by rising volume. I’ve shown in the Down Industrials Monthly Chart that volume has been falling while the Dow Industrials have been rising. Another non-confirmation.
The broad market looks like it could be in trouble.
COPPER – WEEKLY
Copper has now reverted to a short term down trend. It is also marginally below the 30-Week MA. Not decisive – but concerning.
All momentum indicators have turned down from high readings and have plenty of room to move lower.
Copper, along with the Dow Transports, is an important measure of economic activity. If both turn down while the Dow Industrials are still rising, it throws considerable doubt on the “rationality” of the rise in the Industrials.
On a daily chart, Copper is now oversold – so we could see a bounce or consolidation in the short term – but it’s not looking too good in the longer term.
OZ MATERIALS WEEKLY
The Materials Sector was in a long-term down trend from April, 2011. After breaking below the trend line four weeks ago, the chart is back below it. Such a false break is usually a very negative occurrence
The Sector still hasn’t broken above other nearby resistance – the 30Week MA or the October high.
The bottom pane of the chart is a Relative Strength Indicator of Materials:ConsumerStaples. Consumer Staples is a defensive sector and Materials is a cyclical sector. The chart has turned down showing rotation out of the sector into defensives.
The recent topping pattern (circled) has been confirmed by a big down candle this week.
CONSUMER DISCRETIONARY – WEEKLY
Materials Sector represents the strength of the export oriented cyclical economy in Australia. Consumer Discretionary Sector represents the strength of the domestic oriented cyclical economy in Australia. Both need to be strong for the economy and the stock market to be positive.
Consumer Discretionary has been in a long term down trend since April 2010. More recently it has been in a sideways consolidation. It still sits below the 30-Week MA and the oblique down trend line from early 2011.
The Mansfield Relative Strength chart (bottom pane) of Cons.Dis/Cons.Staples has turned down.
The reversal down this week in Consumer Discretionary is not as marked as the Materials, but the turn down from the down trend line does not bode well.
Long term trend: down. Medium term trend: sideways. Short term trend: down.
(Note: Consumer Discretionary chart performance this week was helped by a take-over bid for Billabong which rose 50% as a result. BBG is a major component of the index. The XDJ would have performed much worse but for the one-off effect of the BBG takeover offer.)
DAX (GERMAN) WEEKLY
The benchmark German index remains close to a “double whammy” resistance level (oblique and horizontal).
The chart had seven weeks up in a row. That’s very rare. The past two weeks have been down then up – but relatively narrow in range.
The chart is overbought on the CCI and Stochastic. RSI is very close to overbought. MACD has a negative divergence.
A reversal here is likely. Any reversal might just be an opportunity to buy for those who missed the most recent run-up.
In the meantime, both the medium tern and short term trends are up.
UK – WEEKLY
This weekly chart of the London FTSE shows the index, like the DAX, close to a “double whammy” resistance. The past two weeks has seen it stall at these levels.
Stochastic and CCI are overbought. The RSI is close to overbought and the MACD Histogram shows a possible negative divergence.
The chart is within an uptrending channel and near the top of that channel – so a fall back towards the lower edge of the channel can be expected.
SUMMARY & CONCLUSION
International markets (UK, Germany, U.S.) all rebounded this week but remain at critical resistance levels. Australia is showing a poor correlation with international markets and fell this week, completing a double top. The line of least resistance is down. Australia usually has a good correlation to the USD and JPY – but that also failed this week. A good correlation did exist, however, with the Dow Transports and Copper. Falls in those charts are particularly concerning as they are often leading indicators of the strength of the world economy and, thus, stock markets. It could be that the three international markets are “irrational” and the ‘rational” lies with Australia, Dow Transports and Copper.
Having said that, it should be noted that the international markets longer term look very bullish, so any pull back could be a buying opportunity.
Two cyclical sectors in Australia (Materials and Consumer Discretionary) have turned down this week. Risk appetite has deteriorated judged by their relative performance against a major defensive sector (Consumer Staples). Both sectors have failed at near term resistance – suggesting that the line of least resistance is now down.
Next week is a difficult call. The Australian market is verging on oversold status on the daily charts. So some more sideways to up movement is likely. But the international markets look ominously overbought in the medium term. If they fail, the Australian market could enter a “waterfall” phase. I think we’ll be lower by the end of the coming week
Remember: do your own research. Make your own decisions. I hope that the information I show might help you just a little.
For daily updates – check http://redbackmarketreport.wordpress.com/
WEEKLY STW
Last week I said: “The chart is at an inflection point – the confluence of the 15DMA, the 150DMA and a major support-resistance level. A move up here is bullish. A move down is bearish.” We’ve had a move down.
Looking at this weekly chart, it’s giving clear short term sell signals: broken below horizontal and obligue support; MACD Histogram below zero; RSI below its mid-line. Stochastic below its signal line; CCI below its zero line. Chart falling away from the 30Week MA.
Read in conjunction with the general market commentary above.
Dividend Yield: 4.5%. Next ex-dividend date will be late June. Dividends are paid half-yearly.
(STW is the Exchange Traded Fund which tracks the performance of the ASX200.)
(20min delay)