XJO - Bear Posts only (Factors which might cause the markets to fall), page-16397

QQQ, ETF for the Nasdaq

QQQ (Nasdaq) is in a strong down-trend travelling below the lower edge of my short-term Bollinger Bands (10/0.8). On Wedensday it crashed through a low volume node (Volume Profile, left side of the chart) then found support at a Fair Value Gap formed on the 6 June.

That crash-through long blue candle on Wednesday has also formed a Fair Value Gap (marked with a long rectable) which may provide resistance. The top of that FVG is close to the top edge of the Value Zone of the Volume Profile. That thus provides a double resistance area. If that resistance level is respected, then it will probably also coincide with the 10-Day MA, centre of the three Bollinger Bands on the Chart.

That's a lot of evidence weight aiming at a small rebound followed by a continuation of the down-trend.

The top of the previous bull rally was "predicted" by negative divergences on the Force Index and the Commodity Channel Index (CCI). CCI, in particular, gives very good divergence signals. So far, no divergence signal has been given by CCI for a resumption of the bullish up-trend. That doesn't have to occur - but when it does, it is best not to ignore it.

Dow Jones

The Dow Jones Index has become a very different beast from the Nasdaq. DJI topped later than the Nasdaq and its 10-Day MA (middle Bollinger Band) remains pointed upwards where the Nasdaq 10-Day MA is pointed downwards.

DJI responded strongly with a big bullish candle after the PCE figure came out on Friday (no change) while the reaction of the Nasdaq although positive was insipid and produced an inside day candle.

So we have a distinct divergence between the Dow Jones and the Nasdaq.

The strong action by the DJI on Firday after the release of the PCE suggests it will test the recent high.

Which one of the Dow Jones and Nasdaq is "right" in the long term? Time will tell, but, usually, I tend to favour the weaker index.

STW tracking ETF for the XJO

The ASX is acting more like the Dow Jones than the Nasdaq. That's only reasonable as the Nasdaq is heavily weighted with Tech stocks, while in Australia the Tech sector is a relatively small part of the broad market.

You'll notice that on both the Dow Jones chart and the STW chart the Hull MA200 is headed sideways (big blue curving line in the middle of both charts).

That suggests that the long-term trend of both the DJI and STW is an a lengthy consolidation pattern. It could go either way.

ASX Sector Performance.

The past week was a poor one for the XJO, down -0.63%. Four sectors were up, but two of those were marginal. Best was Industrials (XNJ) up +0.67% and Financials (XXJ) up +0.33%. The two marginals positive results were Health (XHJ) +0.13% and Discretionary (XDJ) +0.05%.

Worst performer by far was Energy (XEJ) -5.6%. Next worst was Property (XPJ) -2.84%.

I include two non-sectors in the above chart. First, Gold Miners (XGD) down -3.11%. Gold Miners is an industry group within the Materials Sector (XMJ).

XGD is notoriously volatile, often figuring in both the best and worst of performers. The other non-sector is IAF, composite bonds, which gives something of a clue to what's happening in interest rates. IAF up marginally this week, +0.12%.

The Reserve Board of Australia makes its next interest rate on 6 August, Tuesday week. The ASX web site produces an RBA Rate Indicator. Here is what it is currently saying:

As at the 26th of July, the ASX 30 Day Interbank Cash Rate Futures August 2024 contract was trading at 95.615, indicating a 22% expectation of an interest rate increase to 4.60% at the next RBA Board meeting.

That suggests there won't be an interest rate increase or decrease at the next RBA meeting.

In America, there is a 90% chance of an interest rate decrease in September. (CME Fed Watch Tool)

Resources.

Resources (Energy and Materials) have been in a down trend for over a month.

That may be coming to a close. Thuirsday shows a high volume candle which often suggests that sellers are capitulating - and strong hands are picking up some bargains. Friday saw a positive, bullish engulfing candle which confirms the previous day's action (sellers capitulating and strong hands or "smart money" picking up bargains. There's plenty of overhead resistance: horizontal resistance, a Fair Value Gap and the lower edge of Value Zone of the Volume Profile.

The lower edge of the Value Zone coincides with a High Volume Node where plenty of stock has changed in the past. So, on the basis of probabilities, the lower edge of the Value Zone looks a likely target for a move higher

Conclusion.

This week I'm looking for a move up on the Dow Jones and the ASX - possibly to test the recent highs.

That move up in the ASX (if it happens) is likely to be underpinned by Resources which have been weak for over a month.

Nasdaq is also likely to rise, but much more weakly than the Dow Jones, maintaining its weak relative strength which will likely play out to the downside for all the major indices.

As always, these are just my speculative ideas, you may have dissenting opinion.

Stay vigilant and watch the charts.