Shush. Don't mention the R word!XJOXJO had a choppy week, down...

 Shush. Don't mention the R word!XJO

XJO had a choppy week, down -0.71%, down the first two days of the week, up the next two, then a moribund Friday.

The MACD histogram has flattened out on the zero line which means, in the short term, the trend is flat.

That's mirrored in the three Supertrend lines which have been drifting sideways for a few days. Those three lines are currently a solid support for the XJO.

Friday was a narrow range day, inside the range of the previous day which was also a relatively narrow range day - a sign of indecision.

A flat market invariably transforms into a more volatile market. Look for a break out of the current low volatility, non-trending market in the next couple of days.

SP500

SP500 hit an historic mark on Friday when it closed above 5000 for the first time ever.

It remains in a strong long-term up-trend which began at the end of October, 2023. (The above chart only shows the past 50 days - and doesn't go back to the beginning of the trend.)

Since the beginning of November, RSI14 has remained above its mid-point of 50 - that's an indication that this up-trend is now nearing the five-month mark. 

Any time the RSI14 has dipped down to its mid-line, the market has been bought. 

Short-term, the trend is up - marked by rising Supertrend Lines (yellow lines).

Stay with the trend. 

Sector Changes this Week

Five sectors were up this week, with six sectors down. 

Best three were XHJ (Health) +1.32%, XIJ (Information Technology) +-0.91% and XXJ (Financials) up +0.73%%.

The three worst sectors this week were XEJ (Energy) -3.44%, XMJ (Materials) -3.03% and XSJ (Staples) -1.73%. XGD (Gold Miners), which is a sub-set of XMJ), fell heavily -6.1%. The fact that Materials were heavily hit suggests that the U.S. Dollar was strong. It was up strongly on the previous Friday, which affected trading in Australia on Monday. On Monday, BHP fell -2.44%, Rio down -2.18% and Fortescue down -2.79%. The Energy sector fell -1.11% on Monday. Whitehaven Coal, for example, fell -2.93% on Moanday. Energy was also affected by the collapse of merger talks between Woodside and Santos. 

Santos fell >5% on Wednesday - not very helpful to an under-pressure Energy S ector.

Are we headed for a recession?

From the Sydney Morning Herald" 9/2/2024:

“Higher interest rates and low consumer confidence have finally had a significant impact on economic activity, with measures of real household disposable income, consumption and savings showing a noticeable pullback compared with a year ago,” KPMG chief economist Brendan Rynne.

Nobody is mentioning the R word, but it does seem to be implied.

Can the stock market tell us anything about the possibility? Consider the following:

On the left of the chart is a group of four sectors classified as "Cyclical". They tend to follow the economy and business cycle. The Average for the past four weeks has seen a rise of +2.3%. The next group of stocks is the "Sensitive" which is also affected by the economy and the business cycle, but not quite as much as the Cyclicals. Sensitve Group up +2.58%. The third group is the Defensive group, which tend to be little affected by the economy and business cycle. Average rise for Defensives is +1.99%. 

There's not a lot of difference between the three groups, 2.3%, 2.58% and 1.99%.

What is significant, however, is the change in recent weeks in the Defensives. For some weeks, Defensives were sitting on the negative side of the equation, which meant that big investors were sacrificing Defensives for investment in Cyclical and Sensitive groups. Not now. 

One month of data doesn't necessarily indicate a lot - but it is a sign that something is changing.

Below is a chart for Staples (XSJ), a member of the Defensives. The bottom panel shows its relative performance compared to the broad market index, XJO:

Since the middle of December, XSJ has been consistently out-performing the XJO (higher highs and higher lows on the Relative Strength). Notably, XSJ is dominated by the two big supermarkets, Woolworths and Coles. They tend to sell what people need not what they want - like JB Hi Fi and Harvey Norman.

XSJ is still weak - under its 200-Day MA. but its relative outperformance is worth noting.

If we do go into recession and unemployment begins to rise, then we'll definitely see the RBA cutting interest rates. Probably too late for many people. 

Michelle Bullock, RBA governor, will, no doubt, avoid scapegoating, as her predecessor, the luckless Phillip Lowe will take most of the blame.

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.

Conclusion.

Currently, the U.S. SP500 is in a strong and long up trend. The Australian XJO has also been in a strong and long up trend, but has faltered a little lately. 

While the trends remain up - investors have to stay with the trend or forfeit further potential gains.

Hiding in the back-ground are noises being made by economists that all is not well in the Australian economy. Stock market sector analysis also suggests that investors are beginning to take a cautious view of the Australian market. Not enough to say that the end is nigh - but enough to keep wary investors awake and ready to move once the trend changes.

Good luck.