12/07 Week, page-310

Weekly Wrap. Week ended 16/7/21. XJO remains range bound.

XJO Weekly Chart:

XJO up this week +1.03%% this week, while the American SP500 was down -0.97%. XJO remains in a strong, long-term up-trend.

The clear long-term up-trend has now been in place for eight months. Nice work.

XJO Daily Chart:

Zeroing in to the daily chart, we can see that the XJO has been in a choppy sideways trend for the past four weeks, beginning with the big down day on Monday, 21 June. The past four days saw the index consolidation at the upper edge of that consolidation and it appeared likely that an upside break-out would occur. With the U.S. down strongly on Friday night, our market will probably fall in Monday and delay any chance of an upside break. The American SP500 is now looking short-term bearish.

SP500 Daily:
This chart is now looking bearish (in the short-term). Friday's big blue (bearish) candle broke below the 8-DEMA - it's been above the 8-DEMA since 21 June - about one month, but that finished on Friday. The Short-term line is now also below the 8-DEMA. The Supertrend Line (1.5/7) has switched to blue (bearish) and the Hull MA13 is also bearish. All those indicators provide confirmation that the short-term trend is bearish. The medium-term and long-term trends remain bullish. Unless this is the start of something big (possible), we remain in buy-the-dip mode.

One-Week Sector Changes.

The best performer this week on the ASX100 was Materials (XMJ), up +4.47%. XXJ (aka the Fat Controller) put a damper on the bullish move with a fall of -0.33%. (XMJ and XXJ are the two biggest sectors on the ASX.)

XXJ is now medium-term bearish and in danger of falling further.


On the PRT Bands, the background is blue. Blue = bearish. As XXJ is the largest sector on the ASX - when it is falling, the out-look for the XJO is compromised.

Bonds/Stocks Ratio:

The 20-Day Performance of the Bonds/Stocks Ratio is now clearly favouring bonds over stocks. It might be time for long-term investors to act defensively and favour bonds over stocks in their allocations.

This result is largely because Stocks have stalled but Bonds have been heading higher. It's still not time to "panic", as the following charts indicate. (It's never a time to panic - stay rational - and make sound decisions based on evidence.)

Net HewHighs-NewLows.

This Net NH-NL is a measure of breadth followed by traders.

The 10-Day MA of NH-NL has stalled at the low end of its recent range, although positive, it has weakened.

That's a "cloud" on the horizon. While the chart remains above zero, however, this says that investments in stocks remain positive.

Since the end of the COVID bear market in early 2020, any time this metric has nudged the zero line, it has rebounded. This chart is headed down, once again, close to the zero line. Watch what happens here with the Bond-Stocks Ratio.

Cumulative NewHighs-NewLows

Net NH-NL is used to construct the Cumulative NH-NL Chart.

The Cum NH-NL Line remains above its 10-Day Moving Average. For the long-term investor, this says to hold on to current investments as the trend remains long-term bullish. This chart has kept the long term investor in the market since May, 2020.

If the Cum NH-NL Line drops below the 10-Day MA - then it's time to take defensive action.

Breadth, % of ASX100 stocks above 200-Day MA.

The % of ASX100 stocks above the 200-Day MA rose a little this week from 66% to 67%. It remains in bullish territory. If it falls below 50% (as it did in late Feb. 2020 before the Covid bear market), then take defensive action.

Currently, this graph is in a coiling, sideways action, i.e., going nowhere. Watch for a move away from this coiling action.

Conclusion:

XJO remains in a medium-term and long-term up-trend. Continue to hold while those trends are maintained.

We have a number of clues to the development of a bear market:

1. Background of PRT Bands turning from yellow to blue.
2. Stocks/Bonds Ratio rising above the 50-Day MA.
3. NewHighs/NewLows Ratio falling below zero.
4. Cumullative NH+NL falling below the 10-Day MA.

At this stage, these metrics are weakening but not giving off definite sell signals.

The medium-term bearish turn in the XXJ (see above) is a concern. If that result turns contagious - we could be headed for a bear market.