19/02 Indices, page-58

Weekly Wrap, week ended 23/2/24

This week's stock market news was dominated by action in the U.S. and particularly the Tech sector and Nvidia.

Early in the week, the SP500 was looking shaky. The Index got down to the 20-Day EMA and, as has happened on multiple previous occasions, buy-the-dippers came into the market. That was on Wednesday. Then Nvidia reported before the market opened on Thursday, SP500 gapped up on the opening and the Index set another new all time high. Friday, the market had a little indigestion after the feeding frenzy on Thursday and rose modestly although some intra-day selling was obvious.

That left the Australia choking on dust raised from the American market. XJO fell -0.19% for the week - and is essentially directionless.

 XJODaily Chart

The XJO set its all-time high back on 2 February. Since then it has lost -0.72% while the SP500 has gained +2.63%. Friday's XJO candle is straddling the horizontal support/resistance level set back oat the beginning of January this hear. So, essentially, the Australian market has gone nowhere in the past couple of months. The negative divergence on the MACD Histogram suggests we're not going to see much change in the current listless direction

What's been happening this week and this month in the Australian Sectors.

1. Sector Changes last Four Weeks

Six sectors up, five sectors down.

Best three were XIJ (Information Technology) +13.98%, XPJ (Property) +7.64% and XDJ (Discretionary) up +6.3%. Those three sectors are from the Cyclical or Sensitive groups which suggests there is still plenty of confidence in this market. They are interest rate sensitive - and, although interest rates haven't fallen, the market is forward looking and expects a fall in interest rates to drop later in the year.

Worst performers were XMJ (Materials) -5.35%, XEJ (Energy) -3.13% and XSJ (Staples). XMJ and XEJ are the two resources sectors which depend to a large degree on the Chinese economy which is facing deflationary pressures. XSJ's fall is largely due to falls in the big supermarket chains, especially Woolworths which had a shocker in the past week, pulling down Coles with it.

It wasn't all bad news in Staples, TWE, for example, rose +18.46% in the past four weeks - but it is a relative minnow compared to Woolworths. A2M Milk did even better with a lift of +26.84% in the past four weeks and >40% since mid-January.

  2. Sector Changes this Week.

It's worth comparing Four Week figures to One Week figures as this can pick up on improvers and back sliders.

Of significance Is XIJ up 3.29% - thus retaining its leadership status in the market.

XUJ (Utilities) is an up-coming sector, improving from fifth place four weeks ago to second best sector this week +1.86%

We can see the Woolworths effect in Staples (XSJ) down heavily this week -3.41%.

The surprise this week is XPJ (Property) falling from one of the best three over four weeks to worst three over one week.

XPJ Chart

XPJ had a big fall on Monday this week, down -2.27% but then stabilised. Supertrend lines switched from all yellow to mixed blue and yellow which suggests the up trend could be changing

XPJ finished the week above its 20-Day EMA so it could be OK. Watch for buying coming back into XPJ around this level.

Long-Term Trend.

Cumulative New Highs minus New Lows provides a handy guide to the long term trend for long term investors. It is currently headed up and above its 10-Day MA - bullish. Stay with the trend.

Are we at "the top"?

I don't hold out to be an Elliott Wave Expert so take what I say here with a grain of salt.

I look at the progress of XJO since the start of the Up Trend in November last year and I can't help but see five waves.

Wave 1. Start of the Up Trend.

Wave 2. Consolidation and pull-back.

Wave 3. Strong impulse wave to the upside.

Wave 4. Pull-back - retracement to the 50-Day EMA.

Wave 5. Resumption of the Up Trend. Wave 5 is about the same size as Wave One which often occurs in a Five Wave sequence. (Wave 1 and Wave 5 are shown with equal sized arrows)

If this reading is correct, then the current consolidation is the start of a retracement which should see the low of mid-January tested.

Conclusion.

XJO was down a little this week while the SP500 went on to a new all time high.

For the past two/three weeks, XJO has been directionless. This could indicate a weakening in buying power. If that is the case, then we can expect a pull-back down to the mid-January low.

Currently the XJO is at 7643. The mid-January low was at 7347. That implies a drop of about 300 points. That suggests a drop of ~4%.

Note - this is completely speculative thinking - watch what happens on the chart. If we get a strong up-thrust here - then my thesis gets blown out of the water.

Good luck.