Weekly Wrap - Week ending 15 September, 2022. Things are Crook...

Weekly Wrap - Week ending 15 September, 2022. Things are Crook in Tullarook.

XJO Monthly Chart.

We have had a little over two week's action in the month of September. Action should only be taken on this chart at the end of the month. The monthly chart does, however, let us see the long term picture for the XJO.

Both Supertrend Lines remain blue (bearish). The chart remains below the 8-Month EMA which is heading downward, i.e. bearish. Hull MA13 is headed down - bearish.

The XJO found support at the 50-Month EMA where it also found support back at the end of 2018. In that case, the XJO continued on up for several months. In this case, XJO has resumed its descent after two months.d The chart seems likely to head down for another test of the 50-MEMA.

In the very very long-term, XJO found support after its bear market of 2020 at the 200-Month EMA. That looks like the support which might avoid a catastrophic fall for the XJO.

Weekly Chart.

XJO was down this week, -2.25% easily erasing the gains of the previous week of +0.96%. The chart remains bearish.

XJO found resistance at the 50-Week MA. Two Supertrend lines have turned blue - bearish. Hull MA13 has turned down - bearish.

The Weekly Chart is in sync with the Monthly Chart - both Bearish.

Daily Chart.

XJO had a strong down day on Wednesday and we saw carry-through buying on Friday. Wednesday's action switched the two Supertrend Lines to blue - bearish. Hull MA13 has turned down - bearish.

Next horizontal support level is nearby at 6720 (round figures). XJO finished the week at 6740 (round figures). After that is a big congestion zone on the left of the chart. Round figures - the congestion zone takes up space from 6600-6700 about 100 points. If the XJO does break nearby horizontal support, that congestion zone is likely to produce consolidation or, more likely, a rebound in the index.

The Daily Chart is back in sync with the Weekly and Monthly Charts. That supports the view that we will see some downside in the short-term, before we get a rebound.

SP500 Daily.

SP500 finished the week opposite the big congestion zone set up inJune/July 2021. That is likely to provide support for the Index.

Friday finished the week with a "hanging man" candle. Coming at the low end of a trend, such a candle often indicates a possible rebound. RSI is oversold, which strengthens the case for a rebound.

Next Federal Reserve meeting is 20/21 September, with an interest rate change scheduled for 21 Sept. That could be a catalyst for a change in the SP500. The market seems to be pricing in a 75 basis point rise in the interest rate set by the Federal Reserve. Less than that would create a short squeeze on stocks. I doubt that is going to happen

Sector Strengths by RSI.

RSI (Relative Strength Index) is calculated using the default setting of 14 days - almost three weeks of trading. It provides a more reliable guide to changes in sectors than the one-week results which can jerk around quite a lot and, thus, RSI is probably a more reliable guide to recent strength in the sectors. (Click here for a description of RSI.)

Eleven of eleven sectors have readings below 50. 50 is often regarded as dividing line between bullish and bearish. With all sectors below 50, we have a very bearish market with weak breadth.

Interestingly, RSIs for XXJ, XMJ, XDJ, XIJ and XEJ (cyclical sectors) are higher than RSIs for defensive sectors (XHJ, XSJ, XUJ). That's a highly unusual profile in a bear market where we tend to see defensives doing better than cyclicals. Why? Good question. Maybe it is suggesting a coming rebound in the market.

Breadth:

1. New Highs - New Lows Cumulative.

NH-NL Cumulative remains below its 10-Day Moving Average and is heading down. This is a good guide for long-term investors. While NH-NL Cum remains below its 10-Day MA, long term investors should remain cautious.

This indicator trends strongly. Only when we see a clear break to the upside, should long-term investors be willing to invest new funs.

2. Strong Stocks - Weak Stocks Cumulative.

This is a metric of my own making. All stocks on the ASX100 are rated on seven criteria. Stocks positive on all seven criteria are rated "Strong". All stocks negative on all seven criteria are rated "Weak".

This week we had 2 strong stocks and 24weak stocks. That's very poor breadth for this metric.

Cumulatively:

This chart remains below its Five-Week MA, which is a bearish reading. This is a reasonable guide for medium term traders.

% of Stocks above key moving averages.

1. % of stocks above 10-Day Moving Average: Last Week 54%, This Week 13%. That's the worst reading since 28/1/22, which marked the end of the Jan. 22 fall.

2. % of stocks above 50-Day Moving Average, Last Week 41%, This Week 25%.

3. % of stocks above 200-Day Moving Average, Last Week 31%, This Week 25%. That's the worst reading since May, 2020.

Momentum on two metrics is very poor. As I said in the headline, things are Crook in Tullarook, but poor readings like these give heart to a contrarian. They are now looking for a rebound in the near term. Can thins get worse? Yes they can. The bear market of March, 2020, saw readings in single digits for % of stocks above the 200-Day MA. If we get down to single digits again on this metric, I think you could buy with your ears pinned back.

I'd like to see all of these above 50% to feel comfortable about the longer term bull market.

Conclusion.

1. Monthly, Weekly and Daily Charts are in sync - bearish. Expect more downside.

2. Breadth has been very poor. Some of the breadth stats are so poor, we may be close to a bottom for this downside cycle.

3. Surprisingly, cyclicals are showing better relative strength than defensives. That may suggest we will see a rebound.

4. Nh-Nl Cum remains bearish - long term investors should stay cautious about adding new funds

4. Historically, September is the worst month of the year, so any rebound will probably be sold into.

5. American Federal Reserve meets in the coming week. That could be a catalyst for a rebound.

Using WD Gann principles, I have a turn date on 26 Sept. You need to give a few days grace either side, so next week could see a change in trend.

Stay safe.