XJO up strongly this week. We may be seeing a bullish trend...

XJO up strongly this week. We may be seeing a bullish trend change.

XJO Monthly Chart.

XJO has been in a down-trend since September, 2021 as indicated by the Hull MA 13 (blue dashes) and the reversal candle which occurred in September.

In January, the monthly chart gave a long-term sell signal on both the Supertrend (1.5/7) and the 8-Month EMA. January was brutal for the XJO. A long standing adage of stock market pundits is: As goes January, so goes the year.

Now, after the third week of March, the March candle is above the 8-Month EMA but below the Supertrend.

I'd like to see the Hull Moving Average turn positive (blue dashes change to yellow dashes) before taking buy action. For long-term investors - stay defensive.

We still have nearly two weeks left in March

Weekly Chart.

XJO was positive this week, +3.27%; the best week since early November, 2020. It has moved above the 8-Week EMA, Supertrend (1.5/7) has flipped to bullish and the Hull Moving Average has also flipped to bullish (yellow dashes)

As seen in the Daily Chart below, XJO is facing stiff overhead resistance but may now have the momentum to overcome that.

Daily Chart.

XJO is short-term bullish. It is now close to horizontal resistance and the 200-Day MA. It failed twice at the 200-Day MA in February.

Some indicators are now into overbought territory, although RSI isn't there yet. RSI typically reverses around the 60 level in bearish markets. We are almost there now. The next few days should be crucial for the XJO's longer term future.

Sector changes this week.

Eight sectors were up this week, two flat and one negative.

Materials (XMJ -1.15%) continued its pull-back this week. Energy (XEJ +0.04%) finished more or less flat. XMJ and XEJ, until a couple of weeks ago, were the back-bone of the XJO. Their pull-back might now be ending.

Best performer this week was Information Technology (XIJ +7.81%), which is an important development as it is a good indicator of risk-on sentiment. Second best performer was Financials (XXJ +6.07%). XXJ is the largest sector in the ASX, and often determines the direction of the over-all market. Banks tend to benefit from rising interest rates as that increases their margins. So that could sustain further upside.

New Highs - New Lows Cumulative.

NH-NL Cumulative this week remains below its 10-Day Moving Average. Until we see a decisive move back above the 10-Day MA, it is best to stay defensive. This is a good indicator for long-term investors.

Weakness in the NH-NL Cum isn't confirmed by my weekly Strong-Weak Stocks Cumulative chart. It is sitting at its 5-Week Moving Average - indecisive.

S-W Cum tends to act a little earlier than NH-NL Cum, but NH-NL Cum has an advantage in being compiled on daily data rather than weekly data.

Advances-Declines Cumulative.

A-D Cumulative has risen above both its 10-Day and 20-Day Moving Averages. That's a bullish development.

Bonds versus Stocks.

At the end of the week, Stocks had a clear advantage over Stocks. That's consistent with the strong rally we've had this week.

The rally may have been too strong.

This is an esoteric indicator showing the Rate of Change in IAF (Composite Bonds) and STW (ETF tracking the XJO). It is often a good indicator of reversion to the mean. If Stocks swing too far one way compared to Bonds, then we often find switching from Stocks back to Bonds - particularly if Stocks are coming up to a resistance level.

At the most recent low before the current one, that low occurred in 9 February, just as XJO came up to the 200-Day MA resistance level. We now have a similar situation. An extremely low level on the chart as the XJO comes up to the 200-Day MA. Expect some change in the relativities between Bonds and Stocks - favouring Bonds.

Stocks above key moving averages - last week and this week.

A look at the number of stocks in the ASX100 above key moving averages provides an idea of how bad/good things are.

ASX stocks above 10-Day MA: Last week 41%. This week 81%. That's into the overbought region (above 80%).
ASX stocks above 50-Day MA: Last week 35%. This week 59%.
ASX stocks above 200-Day MA: Last week 37%. This week 41%.

ASX100 stocks above 10-Day MA: Last week 41%. This week 81%. That's into the Over-bought region (above 80)

ASX100 stocks above 50-Day MA: Last week 35%. This week 59%.

ASX100 stocks above the 200-Day MA: Last week 37%. This week 41%.

This week's strong rally has had a positive effect on all three measures of strength in the market. In the short-term it may have been a little too strong.

Conclusion.

Measures of breadth are indecisive: NH-NL Cum remains negative, S-W Cum is indecisive, Advances-Declines Cum is now positive.

The market is showing some signs of being overbought. For long-term investors, I'd like to see NH-NL Cum turn positive before committing significant new funds to the market.

Good luck and good investing.