Weekly Wrap. Week ended 17/9/21. XJO steadied this week.

XJO Monthly Chart:

XJO remains in a strong, long-term up-trend.

The Index is now on track for its first monthly decline in 12 months. So far, XJO is down -1.74% this month.

September has a poor record in global markets. It is interesting to note that September, 2020 was also down after being up five months in a row.

Going back further in history, September 2019 was up but September 2018 was down after five months on the upside.

September has history on its side for a negative result.

XJO Daily Chart:

XJO down this week -0.04%, essentially flat. But market structure is shaping up bearishly.

On Thursday, 9 September, XJO had a seriously damaging down day of -1.9%. It also took the Index down more than -1.3% below the 34-Day EMA, a major marker between medium term bull and bear markets. Since, the XJO has made upside movement, but it has been lethargic.

On Thursday of this week, XJO made an effort to break above the 34-Day EMA, but intra-day selling saw the index fall back to just below that EMS.

Friday saw a big down day on Friday of -0.76%, pulling the XJO well below the 34-Day EMA.

Friday's fall and failure to overcome the 34-Day EMA, added emphasis to the structural damage done by the big fall the previous Thursday.

Friday's fall sets up a test of the recent low at 7370. That will likely fail given big falls in U.S. Stocks and Commodities on Friday night.

My two cycle indicators (Schaff Trend Cycle and Stochastic 30.10.10) are both bearish which adds to the weight of a pessimistic out-look.

PRT Bands turned bearish (blue) with the big fall of 9/9/21 and remain bearish. Keep the powder dry until the bands turn bullish (yellow).

One-Week Sector Changes.

Despite the flat result for the XJO, breadth in Sectors was positive. Six out of eleven sectors were up, two were flat and three sectors were down.

Energy was the best performing sector, up +3.42%. That bullish result is unlikely to be sustained, however, as Energy in the U.S. on Friday night saw a "Buying Climax". A Buying Climax usually indicates exhaustion by the bulls, and leads to further downside (as we recently saw in the Base Metals Buying Climax.)

The worst performing sector was Materials -3.69%. Materials, especially the big miners, have been adversely affected by a crashing iron ore price, down now to almost US$100 tonne after being above US$200 tonne just two months ago in July.

For months before the Covid bear market in 2020, Iron Ore prices held in a band of about US$80-100 tonne. We are getting close to that band again. Exponential rises in asset classes tend to fail in spectacular fashion, and, after ballooning, tend to fall back to the mean. Iron ore is getting close to that stage again. We may soon see some stabilising in the price of Iron Ore, and some relief from the big falls in the prices of our big miners.

Bonds/Stocks Ratio:



The top panel is a normal chart of XJO over the past 100-Days. The bottom panel compares the performance of XJO (Stocks) with IAF (Bonds). A few times the graph in the bottom panel has dipped below Zero, indicating that Stocks underperformed Bonds. Each time, the Ratio Stocks/Bonds quickly recovered ground above zero, i.e., Stocks once again outperformed Bonds. This time, however, a quick recovery hasn't occurred. That's a signal to take a defensive stance.

Now, for that really boring bit.

This week, NewHighs continued to do better than New Lows.

Where the stock market is concerned - I like being bored. That means my investments are safe and steadily rising. I get worried when the market gets volatile.

The NewHighs-NewLows Cumulative are in a steady bullish trend keeping above the 10-Day MA. Start getting worried -and shaken out of your boredom - when NH-NL Cum falls below its 10-Day MA.

(I remember, some decades ago, tracking NH-NL CUM. I gave up tracking it, because, like now, it showed no change in direction. It just kept going up. At the time, in my innocence, I thought that it had no use at all, so I stopped tracking the numbers. Poor fool me.)

HistoricalVolatility/ImpliedVolatility

Historical Volatility shows how much the market has moved in the past and uses historical data. Implied Volatility shows how much the market thinks it will move in the future and uses option data. While Historical Volatility is below Implied Volatility, the market sentiment is bullish. When Historical Volatility is above Implied Volatility, market sentiment is bearish.

This week saw Historical Volatility jump above Implied Volatility. The market is now bearish - and getting very nervous.

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

The % of ASX100 stocks above the 200-Day MA moved up marginally this week from 68% to 69%. That 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.

Strong Stocks versus Weak Stocks.

Each week, I calculate the number of Very Strong Stocks (VSS) and Very Weak Stocks (VWS) on the ASX100 using a set of seven criteria. This week, VSS rose from 11 to 18, while VWS fell from 18 to 10. That's a net figure VSS-VWS of +8. That's in keeping with the strong performance shown above in the Sector chart. Breadth this week was quite good.

Looking at the Stocks in the Very Weak category, five of the ten Very Weak stocks were miners.

Results in the broad market (XJO) are being skewed by the poor performances of the miners.

f my analysis above showing the possibility of a stabilising in Iron Ore prices, the drag by the miners on our market could be alleviated soon.

Conclusion:

XJO was flat this week, but market structure has been damaged.

We're likely to see more downside, in the near term, but, if Iron Ore and other Metals prices can stabilise, we could see better times ahead.