weekend charting and chat - 09 may 2014, page-9

Sunday Smorgasbord, Weekly Report, week ending 9 May, 2014.

CONTENTS

Australian Market. Indices Performance Year to date.

Australian Market. Indices Performance This Week.

Australian Market. XJO – Monthly Chart

Australian Market. XJO – Weekly Chart

Australian Market. XJO – Daily Chart

Australian Market: Bell-Wether – ANZ

Australian Market – ASX200 and Financials.

International Markets: SP500 Weekly

Risk Attitudes: American Bonds

Commodities: Industrial Metals

AUD and Commodities

Summary and Conclusion

SLF – Weekly

STW – Weekly

AUSTRALIAN MARKET:INDICES PERFORMANCE – YEAR TO DATE

XAO: up +1.68%. Six of ten S&P Indices are up.

S&P Indices Performance – best to worst:

Utilities: +11.77%
Info.Tech: 5.85%
Energy. +5.02%
Financials: +3.74%
Industrials: +3.45%
Health: +0.5%
Consumer Staples: -0.05%
Telecoms: -0.2%
Consumer Discretionary: -1.25%
Materials: -1.77%

Other Indices:

Property: +7.7%
Financials (Ex Property): +3.11%
50 Leaders: +2.01%
Small Ordinaries: -2.4%
Mid-Cap 50: +3.95%
Metals and Mining: -2.76%
Gold Miners: +18.1%

Subtle shifts are occurring. Financials has slipped down one place from third to fourth. Consumer Discretionary is slipping further down the ladder and is now one rung from the bottom. These were two of the strengths in the market in 2013. Meanwhile, Utilities, second from the bottom of the ladder last year, continues to power up at the top of the ladder. Property was also a poor performer in 2013 – this year it is one of the better performers. All of that suggests that investors are increasingly defensive.

AUSTRALIAN MARKET: INDICES PERFORMANCE – THIS WEEK

XAO: flat +0.06%. Seven of ten S&P Indices are up.

S&P Indices Performance – best to worst:

Utilities.: +2.37%
Energy.: +2.1%
Health: +0.58%
Industrials: +0.46%
Telecoms: +0.4%
Materials: +0.26%
Consumer Staples: +0.04%
Financials: -0.42%
Info.Tech: -0.49%
Consumer Discretionary: -1.04%

Other Indices:

Property: +0.91%
Financials (Ex Property): -0.63%
50 Leaders: +0.04%
Small Ordinaries: +0.42%
Mid-Cap 50: -0.21%
Metals and Mining: +0.28%
Gold Miners: +1.92%

Despite the broad based positive results (seven out of ten sectors up), the market finished flat. That’s an indication of the importance of Financials for the Ozzie market. Financials x-Prop is the largest sector by far, so, if it doesn’t fire, the broad index will be, at best, lack lustre. The poor performance in the F x-P was due in part to ANZ going ex-dividend on Friday, but that’s not the whole story. Next week, NAB and Westpac go ex-dividend, so our market will be under some serious pressure from the Financials.

AUSTRALIAN MARKET:MONTHLY CHART – XJO

The month is still young. Not much change occurred in the XJO this week. It is currently down -0.52% this month.

The major formation on the chart is the rising wedge – these tend to be bearish. The upper restraining line of the wedge is currently about 2.5% above the Index’s current level. It’s unlikely that would be broken to the upside in the next week or so.

The Index is about 340 points above the 20-Month Moving Average. That’s about 6%. So the market could sustain a substantial pull back without breaking below that important marker. The chart is also above the rising support line from June 2012, which is closely aligned with the 20-Month Moving Average.

MACD Histogram, RSI, CCI an Bollinger %b are all showing divergence from the main chart. The MACD Histogram is barely above the zero line. A break below the zero line would probably be the start of a major decline in the Index.

So we have bearish influence on the index from deteriorating indicators and a long term rising wedge. But until we see a definite break to the downside, we must presume that the long term trend is up.

AUSTRALIAN MARKET:WEEKLY CHART – XJO

The XJO finished at 5460.8, up just a bit +0.05%. The previous week’s big down movement hasn’t had any follow through.

Indicators:

MACD Histogram. Flat, more or less. Neutral.
MACD. Negative divergence but still above zero.
RSI.9 is at 58.4. In positive territory, but weakening.
CCI.14: +68.2. In positive territory, but weakening.

Momentum Indicators were nudging into overbought territory a couple of week’s ago, but haven’t fallen dramatically. The odds still favour a pull back by the Indicators to much lower levels.

The odds favour a sustained move lower. A break below the support line of the Rising Wedge and the 30-Week MA would confirm. Until then, this is still an up trend.

AUSTRALIAN MARKET:DAILY CHART – XJO

XJO was flat, up +0.05% for the week. The Index has been hugging the Critical Support/Resistance level and the 20-Day MA.

Even if they break, the Index might find support at the 50-Day MA (blue dashed line).

The clear break above S/R is bullish. The Index is now testing that line.

Momentum Indicators are not a lot of help in these situations. They’re good at showing extremes of market action, but in sluggish action they’re of little use. Most are now about mid-range – that’s what happens when little is happening.

We’re now into May. Recent records for May show that this has been a poor month for the Australian market. If history is any guide, the next move is likely to be down.

AUSTRALIAN MARKET: BELL-WETHER – ANZ

Since the last big correction in 2011, ANZ has been following a fairly regular pattern: 21-23 Weeks Up, then 4-6 Weeks down.

This week marks 21 Weeks in this Up Cycle.

All indicators on the chart have turned down.

A big divergence exists on the Money Flow Index.

The performance of the ANZ in this current Up Cycle has been weaker than the performance in the previous four Up Cycles.

The UP/DOWN Cycles in ANZ are related to its ex-dividend cycle. ANZ went ex-dividend on Friday, and the stock was down -3.2%. But, for some reason unknown to me, the stock tends to show continued weakness after ex-dividend date. So we can expect further weakness in ANZ.

Next week, NAB and Westpac both go ex-dividend on 14 May. That’s Wednesday. That will bring more pressure to bear on the broad market indices.

AUSTRALIAN MARKET: ASX200 AND FINANCIALS x-P

Here are 5-Year, Monthly Charts for the ASX200 (XJO) and Financials x-Property (XXJ).

I’ve noted in recent posts that the Ozzie market has a poor record in May. The past four years have all recorded sizeable falls.

These two charts go some way, but not all the way, to explain the reason. The Financial stocks which make up around 40% of the broad Australian market tend to be very weak in May. And much weaker than the broad market benchmark – the XJO.

The extreme weakness in the Financials is explained at least in part by the ex-dividend effects in ANZ, NAB and Westpac.

But that doesn’t explain all of it. Stocks often recover quickly from their ex-dividend generated falls. But that doesn’t happen to the Big Banks in May – the ex-dividend slides tend to continue on.

INTERNATIONAL MARKETS: AMERICAN MARKET – SP500 WEEKLY

This is a picture of “nothing” happening. For weeks nothing much has happened. The chart is now slap bang in the middle of the Standard Error Channel. It’s right where it “should” be.

The market has stopped to a slow trot – like an aged runner at the end of a Marathon. He keeps on plugging on and on.

The slowing of forward momentum is clearly seen in the Money Flow Index. Three times in this bull market (from mid-2011), the market sprinted fast enough for the MFI to get above 80. Then it hit “The Wall”, to use a term from Marathon running, and since then, the market has just chugged away.

The Finish Line is not far away.

When the Finish Line is reached, the chart will fall below the Standard Error Channel and the 40-Week Moving Average. They’ve defined the course of this race.

This market is tired. The Race will end soon.

Unfortunately for us, the spectators, this Race, unlike a true Marathon, has no clearly defined end point.

Just keep watching. It might be boring now – but it is going to get fascinating very soon.

INTERNATIONAL MARKETS: U.S. BONDS

I’ve been bullish about bonds for a few weeks – and that suggests a bearish attitude towards stocks.

But looking now at this chart, I think Bonds are probably due for a rest. They’ve had a good run. But the chart is now in a bearish Rising Wedge. The CCI is showing a negative divergence. MFI has broken it’s up trend. A pull-back to the 20-Week MA (yellow dashed line) looks likely. A worse case scenario would suggest a test of the October 2013 of the double bottom. That should be bullish for stocks in the short term.

Longer term, however, I’m still bullish on Bonds. That big Double Bottom looks like a major change in trend. That also means, long term, a bearish outcome for stocks.

That prognosis puts in doubt the “Sell in May” adage for the American market. But it only delays the outcome. This, however, is unlikely to change the prognosis for Australia. But, maybe, May won’t be as bad as some expect. But – that’s the American market.

COMMODITIES: INDUSTRIAL METALS

This chart is dire. This is a secular bear market in Industrial Metals. The IM Index topped out in January, 2011 and has been in a major down trend ever since.

There’s no sign that this is changing course. (This is the sort of chart that people look at and say - It's been going on for so long, it has to go up. But nothing has to do anything. The trend is down, believe it.)

From mid-2013, the MFI had a solid up move, but the IM Index simply slowed its downward movement but never looked likely to break the down trend.

Industrial Metals Index has important ramifications for Australia because of the importance of Miners to our market. I’ve noted for a long time how XMM (Miners and Metals Index) has been the big under-performer in our market. XMM also topped out in early-2011 and despite a couple of counter trend rallies, has remained obdurately bearish.

With the Financials coming off this month, and IM likely to remain weak, there’s not a lot of hope for our market this month.

CURRENCIES & COMMODITIES

This is a comparative chart of the AUD/USD and Commodities. AUD/USD shown in Yellow/Blue (Up/Down) and Commodities in Blue/Grey (Up/Down). The correlation between the two is obvious.

We often hear how the Reserve Bank is trying to lower the AUD and thus and help our export industries. They try to lower the AUD by dropping interest rates.

I find this chart fascinating as it suggests that the RBA is merely a follower and not an instigator.

Many commentators have been mystified by the rise in the Ozzie Dollar since the beginning of the year despite no change in Interest rates. This chart goes some way to explain what happened. Commodities had a rise in February and the AUD/USD rose accordingly.

Commodity prices are a major factor influencing the Australian economy. While commodity prices remain low, the Australian economy will perform relatively poorly, and the RBA will need to maintain low interest rates in an effort to stimulate the economy. And while commodity prices remain low, the AUD/USD will remain low. Short term changes in the Ozzie Dollar will reflect short term changes in Commodity prices. But the long term direction of Commodity prices is downwards.

With a budget coming up, which is likely to have some contractionary effects on consumer spending, at least in the medium term, there seems little likelihood that the RBA will be lifting interest rates.

So we have low commodity prices, and a probable contractionary fiscal policy. The economy is unlikely to improve much – despite the best efforts of the RBA. It’s pushing against two massive deflationary forces – commodity prices and an austere fiscal policy.

SUMMARY & CONCLUSION

The Australian market had a flat week this week. The Weekly Chart is sitting on Critical Support/Resistance. A fall below that level is likely to see much further falls.

This past week saw some relative weakening in the Financial Sector. That was due in part to weakness in ANZ which fell heavily (predictably) on Friday when it went ex-Dividend. The month of May tends to be a very weak month for Financials while ANZ, NAB and Westpac all go ex-dividend in that month. NAB and Westpac go ex-dividend next week. For some reason, once these stocks go ex-dividend, they tend to continue falling, at least in the short term (say 4-5 Weeks). So that’s going to put downward pressure on our stock market. (Financials make up about 40% of the Australian market.)

The American market hasn’t done much for some weeks. At least that is true of the large caps and blue chips. Broader market indices are weaker – I showed that last week. American Bonds have been very strong lately – putting some pressure on stock prices – perhaps we’re seeing some rotation out of Tech Stocks and Small Caps into safer blue chips and large caps. Technically, Bonds look likely to take a rest. So that might provide some impetus for the American stocks. That might delay the usual seasonal “Sell in May” – perhaps for a couple of weeks. We’ll see.

The coming budget, for all reports, is likely to be fiscally austere and have a contractionary effect on the economy, at least in the short-medium term. Longer term effects are uncertain, but the government seems sure they will be positive. These are long term macro effects. But, given the likely contractionary effects on consumer spending and long term weak commodity prices, it seems highly likely that the Reserve Bank will maintain a low interest rate policy into the foreseeable future. That will go some way to counter-balancing the negative effects of Commodity prices and fiscal policy, but I can only see an ameliorating effect on an otherwise dismal outlook. That’s a negative, at least in the medium term, for our stock market.

For daily updates – check http://redbackmarketreport.wordpress.com/

ETF: SLF – WEEKLY

SLF is the tracking stock for the Property Sector.

SLF was up this week, +1.03%. It seems to have consolidated above a major S/R level. It remains in an uptrend channel in place since late 2013. More upside seems likely but there may not be a lot more in it. A negative divergence is setting up on the CCI and MFI is getting into elevated regions.

According to the Sydney Morning Herald, SLF Dividend Yield is 3.7%. Dividends are paid quarterly. The most recent Ex-dividend date was 31 March, 2014. Dividend was .0552 per share. That’s the lowest dividend since late 2011. (Next ex-dividend date is 31 March, 2014, Monday week.) Dividend Yield is marginally lower than the STW (see next chart). That’s not much incentive to invest in SLF

(SLF is the Exchange Traded Fund which tracks the performance of the Property Sector on the Australian stock market.)

ETF: WEEKLY STW

STW is the tracking stock for the ASX200 (JXO).

This week the ETF was up, +0.39%%. The chart is sitting on a major S/R line. MFI is showing a big negative divergence. The odds favour a move down.

This is at an inflection point. Any further downside would be bearish.

According to SMH, Dividend Yield is 3.9% (last dividend 90% Franked). That, on face value, is a better deal than SLF.

Dividends are paid half-yearly. The dividend announced on 23 December was124.92 c. That’s the best payout in the past 3 ½ years. Next dividend date is in late June, 2014. The stock is currently priced at $51.49.

Redbacka