CONTENTS
Australian Market: Sector Relative Strengths.
Australian Market. XJO – Monthly Chart
Australian Market. XJO – Weekly Chart
Australian Market. XJO – Daily Chart
Australian Market: STW – Daily Chart
American Market: Sector Relative Strengths.
American Market: Major Indices.
American Market: Market Breadth Indicators
International Market: China Daily
Commodities: Copper Futures Weekly
Gold
Summary and Conclusion
SLF – Weekly
AUSTRALIAN MARKET:SECTOR RELATIVE STRENGTHS
This week the broad market index (XJO) was up +0.94%. Despite that rise, the Sector Structure remained unchanged with four sectors on Bear Status. These sectors are: Consumer Discretionary, Consumer Staples, Health and Materials.
The three strongest sectors, as measured by RS (the distance of the stock above/below its 100-Day MA) are: Telecoms (104.2), Materials (103.9) and Information Technology(104.1). Energy is also fairly strong with a reading of 103. Materials until recently was one of the worst performers in the SP Sectors. It is, however, still on Bear Status with the 50-Day MA well below the 100-Day MA. So the current good performance may simply be range trading. It is now at the top of its range and may be due for a pull back.
Gold Mining this week has moved back into Bull Status with the 50-Day above the 100-Day MA. The Index had a pull-back late in the week, so long as it can bounce here – we could see much more upside in the medium term. See chart later in this report.
The strongest of all the sectors and sub-sectors is the Property Sector. This often has a life of its own not moved by general market movements.
AUSTRALIAN MARKET:MONTHLY CHART – XJO
The XJO is currently up +3.48% this month – with just four days left in this month.
The large dominant chart pattern is the Rising Wedge marked on the chart. Being a monthly chart, the Index could conceivably remain within that wedge for months to come. It is essentially a bearish formation.
At this stage in the month, XJO appears to be in break-out mode from its recent consolidation going back to April. It’s above the April high. If it can maintain that break out until the end of the month, this will look good for further upside.
I’ve mentioned many times that the Australian market is affected by two main forces – America and China. China had a great week this week and appears to have set up the potential for a break upwards from its long term secular down trend. America, on the other hand, is overbought and the medium term up trend after Friday’s action could be in danger. (See charts for both America and China later in this report.) If those two influences pan out – we may continue to see a bifurcated market in Australia – Resources up, Financials down.
Indicators are showing potential bearish divergences – which supports the notion of a move lower. We’re getting into interesting territory.
At this stage, the trend remains up. We’ll know the very long term trend has changed to bearish when the Rising Wedge and 20-Month Moving Average are broken to the downside. That does not appear imminent. That should also be accompanied by a break by the MACD Histogram below its zero line. It is currently holding just above its zero line MACD Histogram has been on a bullish break above zero since September, 2012.
AUSTRALIAN MARKET:WEEKLY CHART – XJO
The XJO finished the week at 5531.6, up +0.94%. The Index is now at the upper edge of a Rising Wedge formation. This is a smaller formation than the one mentioned in the Monthly discussion. (Wheels within wheels.)
The Index is currently above a shorter term oblique down trend line and a horizontal S/R line going back to October, 2013. This is promising – but the Index still needs to break out of the Rising Wedge formation. The momentum lies to the upside at this stage. The coming week could be crucial. The Index has been above the 50-Week MA since August, 2012.
Indicators:
MACD Histogram. Marginally above zero. Neutral.
MACD. Above zero – but showing a negative divergence
RSI.9 is at 67.4. Positive
CCI.14: 204.4. Extremely overbought.
The CCI reading is of concern. That’s the highest reading since the end of the GFC back in early 2009. We might need to see a negative divergence on this indicator before a break-down occurs. That could be some weeks away.
Rarely does the CCI reach such levels without a pull-back sometime in the near future. On weekly chart – that could still mean a few weeks. This is a warning sign.
AUSTRALIAN MARKETAILY CHART – XJO
This week the index broke out of its recent trading range only to bump into overhead oblique resistance. It has now paused. Given action in America and Europe on Friday, we are likely to see a big down day on Monday. If we get that, it would be a bearish event.
Indicators:
MACD Histogram. Above zero. Positive.
MACD. Above zero. Positive.
RSI.9 is at 72. Overbought.
CCI.14: +124.4 and falling. Overbought.
The market has broken out – but not confidently. Wednesday’s surge wasn’t followed through on Thursday and Friday where the index met oblique resistance.
The Indicators (esp. RSI and CCI) suggest a pull back is due.
The other factor to watch is the closeness of the 50-Day and 100-Day MA. A negative x-over as the index falls through them would be very bearish. But let’s deal with that when (if) it happens.
At this stage, the trend is up and in pause mode while it negotiates overhead resistance.
AUSTRALIAN MARKETAILY CHART – STW
STW is the tracking ETF for the XJO. It was up this week 0.72% while the XJO was up 0.94%. A small difference.
Checking the STW against the XJO sometimes reveals important differences and added information.
I don’t have accurate volume data for the XJO but I do have for the STW. And that data is directly relevant to the instrument, where the volume for the XJO is “synthetic” – it is an accumulation of the individual stocks in the XJO. It may or may not indicate investor sentiment towards the XJO and can be distorted by big/small volumes in one of the big stocks in the XJO.
It may be significant that the STW, unlike the XJO, hasn’t yet broken out above horizontal resistance.
Of more importance is the data on volume. MFI has now moved into the Sell Zone.
Wednesday’s action is particularly revealing. While the XJO surged strongly (up +0.6%), the STW had a big reversal day. Up strongly, then fell. It finished up +0.35%, after being up much higher earlier in the day. That occurred on heavy volume. Somebody with long pockets was selling the ETF quite strongly during the day. Some institutions rely heavily on the STW as the means for tracking the XJO. That is a cost effective method of tracking the Index. The other way to do it is to hold a basket of representative stocks – which is a costly exercise keeping the basket tracking the Index. So it seems likely that a big institution wasn’t convinced about the viability of the rise on Wednesday. Action on Thursday/Friday makes such a move quite prescient.
AMERICAN MARKET:SECTOR RELATIVE STRENGTHS
This is similar to the charts above for the Australian market.
The SP500 was barely changed this week, up just +0.01%. That followed the previous week which, although up, was a narrow range week. The Index has now been in a trading range for the past four weeks.
For the month of July, the SP500 is up +0.92%.
The Americans are in the grips of a strong bull market. All Sectors show Relative Strength above +100 and all Sectors are showing Bull Status Flags. The weakest sector is the Russell 2000 – represented here by the IWM which is the tracking ETF for the R2K. This is a concern as the R2K is one proxy for breadth. (See below for more breadth charts.) The RS is barely above par (100%).
Technical analysts usually get concerned if breadth is narrowing, as markets can’t keep going up on fewer and fewer stocks. This often portends a pull back.
AMERICAN MARKET:MAJOR INDICES
This is a set of six charts: NYA – New York Composite Index, COMPQ – Nasdaq Composite Index, OEX – S&P 100 Index, NDX – Nasdaq 100 Index, SPX – S&P500 Index, INDU – Dow Jones Industrial Index.
Four out of the six indices are above their 20-Day MA: COMPX, OEX, NDX, SPX.
Two out of the six cut below their 20-Day MA on Friday: NYA and INDU.
That’s interesting as NYA is the broadest measure of the market comprising all common stock on the NY Stock Exchange (about 2000 stocks), while INDU is the narrowest measure comprising 30 large blue chip companies.
The INDU is one of the most commonly watched indices in the world. Perversely, despite being made up of blue chips – it often leads the market during significant market moves.
At this stage, using a Relative Strength criterion, INDU is the weakest of this set of indices as it is the furthest below the 20-Day MA. The next weakest is the broadest measure – NYA, New York Composite, which has marginally broken below its 20-Day MA.
Friday’s action in all indices is now looking bearish. The four indices still above their 20-Day MA saw a gap down at the open on Friday which was never recovered. That often occurs at the beginning of bear trends.
AMERICAN MARKET:MARKET BREADTH INDICATORS
Here are two sets of different types of breadth indicators for the American markets.
In the first set, the left column of three charts shows the Cumulative Advance/Decline Lines for the New York Stock Exchange, Nasdaq and Amex Exchanges. (Amex is an exchange for high growth, small cap stocks.) All three show declines since highs in early July. That’s been occurring while the SP500 is up 0.92%.
The right column of three charts shows the Cumulative AdvancingVolume/DecliningVolume for the same three stock markets.
Once again, all three show declines from earlyJuly/late June.
The second set of six charts shows the Bullish Percent charts for six different Indices (NY Composite, Nasdaq, S&P100, Nasdaq 100, S&P500, Dow Industrials). BP charts show the percentage of stocks in an index which are on “buy” signals. Every one of these charts shows the BP dropping below their respective 20-Day Averages. That’s taken as a “sell” signal for the index.
No matter how I look at what is happening in the American markets, I see only negative divergences between breadth and the major market indices.
This looks like a house built on sand.
CHINA – DAILY
The Chinese market had a big rise this week, up 5%. Such large weekly rises in the Chinese market are not uncommon, but this week’s was a little more unusual. Thursday saw a big gap up taking the Index way above the upper Bollinger. This saw follow-through buying on Friday.
This is probably an artefact of what’s now known as the Shanghai-HongKong Connect or the “through-train”. In October, stock brokers in Hong Kong will be able to buy and sell shares in Shanghai and vice versa – within certain daily limits. This will also allow international investors easy access to the Chinese market via Hong Kong brokers.
The daily chart is now clearly overbought and at a major resistance level.
The CCI hit 308 on Thursday. I checked back three years – and that’s the highest level for the CCI in that period of time. RSI is also over-extended, up at 83.3. Such readings usually result in pull-backs. But the Chinese market occasionally sees “fat-tailed” events – statistically unusual, volatile movements. This could go higher – but probably not. It could be the start of a re-rating of the Chinese market as Hong Kong money and international money gets easy access to the market. Who knows? This move is still a minnow compared to the Dec.2012/Feb.2013 bear market counter-trend rally of 35%.
My preferred scenario: a pull back to the 20-Day MA – then a bounce off that. If that happens – we could be seeing the end of the secular bear market in China. And strong flow-on effects to Australian Resources. We can only hope. But there have been plenty of false dawns in the Chinese market over the past five years.
(China88 is an index composed of the biggest stocks on the Shenzen and Shanghai markets.)
COMMODITIES:COPPER FUTURES WEEKLY
Copper is one of the most important Industrial Metals and is often seen as a proxy for world economic conditions, particularly emerging economies which are engaged in infrastructure building and new residential housing.
It’s also an essential indicator for the health of the Australian mining industry which supplies much raw material to emerging economies, particularly China, the largest of the emerging economies.
Copper topped out in early 2011 – at much the same time as our Mining Index. The correlation is clear.
Since early 2012, whenever Copper gets up around the 100-Week MA (blue dashed line), it has reverted to the down side.
I still can see no reason to be obviously optimistic about Copper – it had a good week this week up 1.76%. But, until we see a significant break above the 100-Week MA, I’d be cautious about our miners.
Further falls and our miners should also fall – for at least a few weeks.
GOLD
US$ Gold had a good session on Friday up +1.16%, and down on the week -0.27%. (See upper chart.)
The GLD chart (US$ Gold) is very promising. It’s formed a Falling Wedge which is bullish. The 50-Day MA has crossed above the 100-Day MA and the POG bounced strongly off that level on Friday. This is a much healthier situation than the one which occurred the last time GLD had a positive 50/100 MA x-over. At that time, GLD was high above the x-over point. Too far, too fast. This time, the action looks sustainable. A break above the restraining line of the wedge should be bullish.
The lower chart shows the Australian Gold Miners Index. It has also seen a positive 50-100 DMA x-over. Newcrest Mining had a poor report on Thursday and fell heavily. Perhaps that’s got the bad news out of the way.
There are plenty of Australian Gold Miners performing much better than Newcrest (the largest miner in the index). A mid-sized producers, for example, is NST. There are also plenty who are doing worse. (That’s not a tip – do your own research on Gold stocks, or - have a chat to Pisces.) Gold stocks can be a mine-field (forgive the pun), performance is very much determined by individual circumstances – and not necessarily related to POG.
SUMMARY & CONCLUSION
The Australian market was up this week: XJO +0.94%. American SP500 flat +0.01%. China up +5%, Germany down -0.78% (and fell off a cliff in the last hour of trading on Friday.) Japan up +1.59%. All over the show.
The American market has been in a long-term bull market for over two and a half years. Last week I said: “There’s no indication yet that this is about to change.” Well – now there is. Breadth has deteriorated. And that is now becoming a definite trend. And further deterioration in breadth and it’s difficult to see how the major American indices can continue bullish. Friday’s action in America was certainly bearish. One day, however, doesn’t make a trend. But, with breadth beginning to deteriorate, further downside in the major indices should lead to further falls. We’re coming up to the last week of the month. End-of-month often sees money flow into the market, so any deterioration might wait until August, which doesn’t have a good historical record. I’m certainly not confident of any further rises in the American market. I still can’t see that a major correction is on the cards. ZIRP should keep stocks the preferred investment option for Americans. Sentiment hasn’t reached extreme levels, which is usually a pre-cursor to a major correction. So – a pull back seems on the cards. August, in the past four years, hasn’t been favourable for the American market, down three out of the past four years.
Changes in the Chinese market were dramatic this week. These may have some fundamental basis – but appear to be largely driven by the looming HongKong/Shanghai connect. That allows Hong Kong and international investors much easier access to the Chinese market. How substantial that is likely to prove is another matter. China is currently overbought and seems likely to pull-back here.
Copper is still in a bear market. That could change quickly – but until the chart gets over the 100-Week MA, I’d be cautious.
Our Mining Index is now at the top of a wide trading range and looks ready to pull back. The Miners have been the mainstay of the recent advance in our market. So, if the Mining Index does pull back, that’s a negative for the broader market.
I think we’re probably going to see another poor month this year in August.
SLF is the tracking stock for the Property Sector. This week it was up +1.09%. The stock is overbought and close to the May, 2013 highs. That’s been my target for this run up. I’ll be surprised if we see much more upside. With a weekly RSI at 76 and a CCI above +200, this is getting set up for a pull back.
Late June was ex-dividend week. According to the Sydney Morning Herald, SLF Dividend Yield is 5.9% – that’s a healthy jump from the previous 3.6%. Dividends are paid quarterly. The next ex-dividend date is late September. Dividend in the last quarter was .3251 per share.
(SLF is the Exchange Traded Fund which tracks the performance of the Property Sector on the Australian stock market.)
AILY CHART – XJO
(20min delay)