The XAO was up this week, but not very convincingly, +1.26%. Monday was strong, but after that the market went to sleep. The previous week all 10 S&P Industry Sectors were up. This week four Sectors are up. Breadth is weakening
The three best performing S&P Industry groups during the past week were:
No.1. Financials. +4.35% No.2. Health. +2.53% No.3. Information Technology. +2.07%
The three worst performing S&P Industry groups were:
The weekly figures give some suggestion that this bull run may be coming to an end. Materials and Energy, the two most important export oriented, cyclical sectors, are now in the bottom four sectors. (Materials was seventh on the Table this week.) For the month, Materials was the leader. That is a relative reversal of fortunes. Health has moved up into the top performers this week.
GENERAL OBSERVATIONS
Well, I haven’t put on the Super Hero Suit to proclaim the end of the Bull Rally, but your cuddly analyst has been giving the Proclamation Speech a practice run.
Nothing decisive has occurred to say that this market is turning down.
It is very overbought with the Weekly Slow Stochastic at an extreme reading of 95, but it would not be unusual for this indicator to remain overbought for another two or three weeks before giving a sell signal.
Last week I spelt out some of the major pluses and minuses for this market. This week I’ve kept those and updated them with notations in Caps.
On the plus side:
1. The XAO Point and Figure Chart had a bullish triple top break-out on 24 July with a target of 5550. This broke above a long term descending trend line from May 2008. REMAINS CURRENT
2. All ten S&P Industry Sectors are positive on the week. ONLY FOUR SECTORS POSITIVE THIS WEEK. BREADTH IS WEAKENING.
3. The AUD/USD ratio continues to climb higher reaching 0.835 this morning (Sunday). Three weeks ago it was at 0.775. (A positive rise in the Ozzie correlates with a positive Australian stock market). This looks headed for 0.9 after breaking above the key 0.82 level. THE OZZIE IS CONSOLIDATING ABOVE 83. THIS MORNING (SUNDAY) IT IS AT 83.6.
4. The Advance/Decline Line continues to rise. Momentum was slowing but on Friday momentum once again broke to the upside. (The A/D Line has now been up 14 days in a row.) THE A/D LINE HAS FLATTENED OUT AFTER A GOOD RUN LAST MONDAY,
5. The XAO’s On Balance Volume Chart is now at levels last seen in December, 07/January, 08. THIS WEEK SAW AN “IMPOSSIBLE” EVENT IN THE VOLUME CHARTS WITH A VOLUME SPIKE 12 STANDARD DEVIATIONS FROM THE MEAN. THIS WAS CAUSED BY A MASSIVE RELATED PARTIES TRANSACTION IN WHICH ABOUT HALF GPT’S SHARES WERE CROSS-TRADED. STRIPPING THAT EVENT OUT, VOLUME HAS REMAINED UP AT LEVELS SEEN IN LATE 2007 LEVELS.
On the minus side:
1. This market is overbought and due for a retracement:
a. The Daily Slow Stochastic is at 88.1 and registering above 80 for more than two weeks. THE DAILY SLOW STOCH IS AT 70, BELOW ITS SIGNAL LINE AND HEADED DOWN.
b. The Weekly Slow Stochastic is at 90.7 – very overbought. NOW AT 95. YIKES!
c. The Daily RSI using the default setting of 14 is at 74.9 – very overbought. DAILY RSI AT 7.08 SHOWING NEGATIVE DIVERGENCE TO PRICE.
d. The Daily RSI using a discretionary setting of 2 is at 93.1 and showing a negative divergence to price. (This is a short term signal but divergences in the overbought area are usually highly reliable indicators of a retracement.) RSI (2) AT 50.2 AND HEADED DOWN.
e. %B is showing a negative divergence to price – indicating a retracement is due. SLOPING GENTLY DOWN – DIVERGING FURTHER FROM PRICE.
f. The Weekly MACD Histogram is showing a negative divergence to price indicating a retracement is due. NO CHANGE
g. The Weekly Rate of Change (ROC) is showing a negative divergence to price. This is a leading indicator which provided clues to the current bull rally with a positive divergence back in December08/March09. It is not useful as an entry indicator but as a leading indicator it is very useful for cueing in to possible major changes in trend. NO CHANGE.
2. The Baltic Dry Index which has a high correlation to our share market has not confirmed the later stages of this bull rally with new highs. Its last new high was back in early June 2009. Since then it has been in a gently sloping down trend. BDI CONTINUED TO DETERIORATE. BROKE MARGINALLY BELOW THE 89-DAY SMA .
3. The 4300 area on the XAO (about 4200 on the XJO) is formidable resistance established back in October and early November, 2008. The XAO is rapidly approaching that area and a consolidation or retracement can be expected at that area. XAO STALLING IN THE 4300 AREA.
4. Using a discretionary Bollinger Band setting with a mid-line of a 50-Day SMA, the XAO has had three significant pushes outside the Upper Bollinger Band since this rally began in March, 09. Combined with a negative divergence on the Weekly MACD Histogram, this has been a reliable leading indicator of a reversal. NO CHANGE.
5. The Percentage Volume Indicator has registered a resistive volume spike and is now at a level where retracements can be expected. Volumes have been steadily increasing and on Friday reached climactic proportions. NO CHANGE.
Conclusion: A strong up trend which is consolidating at the highs of the recent rally. Divergences, overbought readings, and non-confirmations suggest that this market will reverse to the down side.
But – until the reversal occurs, the trend is the trend is the trend.
INDICATORS
THE ALL ORDINARIES INDEX (XAO):
Much of the material I usually present in this section has already been detailed in the General Observations section. So, this week, I’m not detailing the usual XAO Indicators.
50 LEADERS
No. Of Stocks above 50-Day SMA: 43 (86%). No. Of Stocks above 150-Day SMA: 43 (86%).
These are extreme bull market readings and suggest the market is overbought. It is due for a retracement. But – the retracement might be mild and just the pause that refreshes. We’ll see how it goes.
No. of Stocks above 10-Day SMA: 28 (56%)
This is coming off a very high reading of 98% three weeks ago and suggests a retracement is beginning. There is room yet for downward movement.
I’ve also done some additional figuring with the DMI and ADX. It is usually presumed that a stock is not trending if the ADX is below both the DMI+ and the DMI-. Just three weeks ago, four stocks were trending positively. This week 34 stocks (68%) are trending positively. The number of non-trending stocks has dropped slightly to 16 (32%). The number trending negatively has dropped to ZERO. That has to be some kind of record.
CONCLUSIONS.
The market has paused this week after making strong gains for the previous three weeks. Prospectively it is due for a retracement. I doubt that means a return to bear market conditions, but we’ll just have to see how any retracement pans out. We are now staring September in the face – historically the worst month in the year – to be followed by October which has a record of the biggest single drops in history. If the market can weather the next three months in reasonable shape, then the next November-April period should provide good pickings.
(20min delay)