On Friday, SP500 broke out of the large symmetrical triangle. That’s positive, but it still hasn’t broken above the pivot point on 27 February. A move above that level would be bullish.
The short-term trend channel has risen. Indicators have ticked up giving “buy” signals.
On balance, this chart is bullish but the evidence is not overwhelming.
XJO Charts, Daily, Weekly, Monthly
XJO Daily:
Friday, XJO broke above a short-term down-trend line. The short-term trend channel moved to the upside. MACD and CCI have ticked up – that’s positive. I’d like to see the short-term Stochastic move above the long-term Stochastic (bottom panel).
On a 30-Day basis, XJO has a 0.78 Correlation with the SP500. So we can expect the XJO to follow the SP500 lead from Friday night. That should take it above the 50-Day MA which would be bullish.
Early this week, XJO tested the 200-Day MA as support which held. That’s another bullish pointer.
XJO Weekly:
The XJO is up +0.58% last week.
The long-term trend on the Weekly Chart remains bullish.
The XJO suffered considerable technical damage five weeks ago and the Index is still trying to pull out of that dive. The 50-Week MA has held as support – that’s a positive.
INTERNALS – AUSTRALIAN MARKET.
Measures of internal strength were generally stronger and bullish this week.
We have seven out of eleven sectors above their 200-Day Moving Averages. The seven sectors above their 200-Day MA are: Energy, Consumer Staples, Consumer Discretionary, Industrials, Inf.Tech., Health, Materials. The 200-Day MA marks the long term trend.
Financials (XXJ) makes up 33.5% of the XJO. It continues to hold below its 200-Day MA. That’s the biggest drag on our market. Until it gets back above its 200-Day MA, the broad market index (XJO) is under some threat. In recent weeks, XXJ has been outperforming the XJO, so there is some bullish indications there.
The other sectors below their 200-Day MAs are Utilities, Property and Telecoms. Utilities and Telecoms are relatively small sectors so don’t pose much threat to the general market trend.
The medium term trend is marked by the 50-Day MA. Six out of eleven sectors are above the 50-Day MA. So the market is somewhat bullish. Significantly, XXJ has moved back above its 50-Day MA. Energy and Materials are both in medium-term down trends and have both fallen below their 50-Day MAs. Materials (XMJ) is the second largest sector in our market and makes up 17.4% of the XJO. So its impact on the XJO is considerable, but nowhere near as important as the XJO.
The number of stocks in the ASX100 positive on the Directional Movement Histogram rose from 35.4% to 52.5% putting it above the line (just) between bullish and bearish . Stocks above the 50-Day MA rose from 34.3% to 44.4%. That more or less balance out the bullish reading on the DMX.
The slowest moving trend indicator is the line for stocks above the 200-Day MA. That rose this week from 49% to 56%. That’s marginally into bullish territory.
We need to see a further push up on these indicators to be comfortable with how the market is progressing.
Sectors:
Materials
XMJ fell this week -1.64%.
We can see in the bottom panel how XMJ has been underperforming the XJO.
The chart is now more or less at the bottom of its trading range, so expect a move to the upside from here. A break below the bottom of the trading range would be bearish. I’m not expecting that.
The three strongest stocks in XMJ are CSR, NST and ILU. A rebound in XMJ could see those stocks out-perform.
Industrial Metals in the U.S. which tends to govern the fortunes of our Miners, gave a “buy” signal on Friday night. So our Miners could see good gains in the next few days.
2. Health
Health finished up +2.45% for the week.
Three indicators have had bearish crosses. The Relative Strength shows that Health may be about to underperform the XJO.
Health has been the second-best performer on the Oz market (after XIJ). Look to buy dips in the strongest stocks, e.g., CSL, COH, RMD, ANN. All of those have large overseas markets.
3. Inf.Tech.
XIJ is the second smallest sector in our market making up 2.6%. Only three large-cap stocks stocks make it into the ASX100. XIJ up this week +3.33%
The chart has formed a broadening top formation. These are unstable conditions.
It seems likely to head back up to the top of the broadening formation. Caution with stocks in this sector. 4. Consumer Discretionary.
Consumer Discretionary was up this week +1.86% but heading into a Resistance Zone. Indicators are giving “buy” signals, so there’s a good chance it can push up through that zone. If it can, then we’re looking at a test of the early February highs.
The performance of XDJ against the XJO has been very choppy for many weeks. It is currently out-performing.
FLT was the best stock in this sector, but it’s run looks to have ended. REA is an improver – that might be a better bet.
5. Consumer Staples.
Consumer Staples was up this week +0.58% and broke above a short-term downtrend line on Friday.
The “pipe stack” which occurred two weeks ago at horizontal resistance looked like an exhaustion move, and so it proved. The current pull-back and bounce off the 50-Day MA looks like a set-up for more upside.
The strongest stocks are CCL, GNC and TWE. Forget about Woolworths and Wesfarmers.
6. Energy.
XEJ down this week -0.94%. It is now sitting on the 200-Day MA so it could bounce strongly here. Watch for that rebound. Of course, if it breaks lower, then the Sector is in bearish territory.
Steer clear of Energy until we see definite improvement.
7. Telecoms.
XTJ had a strong counter-trend rally this week and was the best performing sector, up +5.06%.
The old adage comes to mind: “Trick me once – shame on you; trick me twice – shame on me.”
Let’s see more signs of improvement in XTJ before diving in.
8. Industrials.
XNJ up this week +1.62%.
XNJ is beginning to look promising. It has formed a higher low and if it can rise above the pivot point marked on the chart, it will form a higher high – a definition of an up trend, which would break the down-tern from early November, 2017.
Qantas is the strongest stock. SEK is also looking good and is in a rising channel. It is currently at the top of that channel – look to buy dips.
9. Financials
XXJ is always the elephant in the room when we’re talking about the Australian market. It has about 33% market share, so if XXJ struggles, it’s likely that the Australian market will also struggle.
XXJ was up this week, +0.49%. It is now, once again, running into a big Congestion Zone. That stopped its last rally. If it can negotiate that Congestion Zone, the sky looks to be the limit.
The best performer is IAG. It’s worth a look.
Three of the four big banks are below their 200-Day MAs this week. If you must have a big bank, then look to NAB – it’s the only bank (just) above its 200-Day MA.
10. Utilities
Utilities was just up this week, +1.01%. It may be forming a bottom, but like Telecoms, we need to see a lot more improvement before being tempted.
11. Property.
Property had a positive week, +1.19%. It still remains in bearish territory.
It may be making a bottom, but we need to see a lot more positive action before diving into this one.
There is one stock in this sector which is worth a look, LLC. Leave the others alone. LLC is a little different from most other Property stocks. It has a big construction component and operates in many overseas countries. It is now in a short-term sideways consolidation. If it breaks upwards from that consolidation, it becomes a “buy”.
12. Gold Miners
XGD is in a sideways box. Until it breaks upwards out of the box leave this one to the traders. There’s plenty of talk in America about potential inflation. If that happens it would be bullish for Gold, but we need to see more evidence.
Summing Up:
The market had a better week this week and there’s plenty of positive signs.
America had a Whooshka on Friday Night – if that translates into bullish action in Australia on Monday (highly likely), then we could see a definite medium term bullish trend develop.
I’m looking for positive action in the Materials Sector (XMJ) to lead our market higher. XMJ has been in a sideways trend since mid-January. It looks set to move back to the top of its trading range in coming days. A break out of that range to the upside would be a bullish signal for XMJ and our market.
(20min delay)