20/11 Indices, page-84

Contents

1. STW - ETF for XJO.
2. SP500 and VIX
3. Investors Sentiment AAII
4. Sectors State of the Trend
5. NH-NL Cumulative.
6. Conclusion.

Chart for STW - ETF for XJO.

STW had a big move up on Wed. 15 Nov, up +1.45%. That's about two weeks ago. The chart has been consolidating since then.

This week XJO was up +0.46%, (STW +0.49%). That's a fairly modest rise for one week. Seven Sectors were up while four were down.

I use three Supertrend lines (10/1, 11/2 and 7/1.5) to gauge the trend of the market. Three yellow lines - up trend. Three blue lines = down trend. Mixed colours = Consolidating, trend may be changing. The colours of the three Supertrends are mixed, therefore, the ASX is consolidating and the trend may be changing, i.e., from down to up. But we have to wait and see which way the ASX breaks before making any commitments.

3-Day EMA of RSI has resumed its up-trend after breaking lower the previous week.

The bounds of the consolidation are: upside 64.18, downside 63.04. In the XJO that translate to: 7105 and 6988.

SP500 in America on Friday night was up +0.6% so we could see a test of the upper boundaries of consolidation on Monday.

SP500 and VIX

This chart is screaming: Be afraid, be very afraid.

The chart is at the top of the Value Zone which often acts as resistance. There is also a major horizontal resistance line at that level 4595 (from the high on late July earlier this year).

Indicators in the lower panels are bearish.

1. DZ Stochastic has entered a "squeeze" phase which often comes before a big move. In this case, to the down side.
2. 3-Day EMA of RSI (14) is at 72 - that's very overbought and often precedes a fall.
3. MACD Histogram and 3-Day EMA of the Force Index are showing negative divergences.

I wouldn't be betting on a strong up move here based on this chart.

VIX (Volatility Index) for the American market is at a multi-year low. That means that traders are extremely complacent which makes them vulnerable to any shocks that might hit the market.

VIX for for the Australian market is at a 20-year low. (Holy Ravioli, Batman, look at that VIX) (From Market Index.)

What is it about our market that has put traders into a 20-Year somnambulism state? Beats me. Can't see it myself.

Investors' Sentiment. AAII

In America there is an organization called "American Association of Individual Investors". This organization each week asks their members for how they feel the market will be in the next six months. The respondents can pick: Bullish, Neutral or Bearish.

Below are the results of their most recent poll, plus results based on historical data.

Commentary on these results are:

NOVEMBER 30, 2023

AAII Sentiment Survey: Optimism Continues to Rise; Pessimism Reaches Lowest Level Since 2018

"Optimism among individual investors about the short-term outlook for stocks continued to rise in the latest AAII Sentiment Survey. Meanwhile, pessimism decreased to its lowest level in almost six years. Both types of readings have historically been followed by below-average and below-median six-month returns for the S&P 500 index.

"Bullish sentiment, expectations that stock prices will rise over the next six months, increased 3.5 percentage points to 48.8%. Optimism is unusually high and is above its historical average of 37.5% for the fourth consecutive week and the fifth time in eight weeks."

Again this should give traders/investors some thought before plunging more into the current stock market.

Sectors - State of the Trend.

If I use the Three Supertrends as criteria for judging the trend in each sector, this is how the trends shape up at the end of the week.

1. Bullish: Last Week - XNJ, XHJ. This Week- XXJ, XIJ, XHJ, XNJ
2. Neutral, i.e, trend may be changing: Last Week - XMJ, XXJ, XPJ, XIJ. This Week -XDJ, XTJ, XSJ, XPJ
3. Bearish: Last Week XUJ, XSJ, XTJ, XDJ, XEJ. This Week: XMJ, XEJ, XUJ
   

Some improvement has occurred in the past week, with the 11 Sectors are fairly evenly distributed between bullish/neutral/bearish.

Is there anything in this analysis which should explain the extreme complacency in Australian traders? If there is, I can't see it.

The three Supertrends shouldn't be used in isolation - e.g., the "Neutral" category doesn't tell us much about which way the trend could be swinging. A more nuanced approach is needed.

Neutral Sectors:

1. Discretionary (XDJ) may be changing from down to up (bullish).
2. Telecommunications (XTJ) may be changing from down to up (bullish).
3. Staples (XSJ) may be changing from down to up (bullish).
4. Property (XPJ) trend may be changing from up to down (bearish).

NH-NL Cumulative

The New Highs minus New Lows Cumulative is a medium to long term momentum indicator. It is best used by long term investors.

NH-NL Cumulative has been in a down-trend since early September. The past two weeks has seen a consolidation at the lows but no definitie change to the trend. Wait.

Note that this indicator has kept investors out of the recent counter-trend rally which occurred from late October till now (late November).

It's not unusual to see a pull-back in our market from now until early or mid December. Later in December could see a definite change in the NH-NL Cum putting long-term investors into a sustainable up-trend. We shall see.

Conclusion

The Australian market has been in a strong counter-trend rally which started towards the end of October.

The major Index for the ASX (XJO) is now in "neutral" - it could go either way. Given all the pointers above, I think the current complacency of traders is likely to receive a shock. Complacency is at multi-year lows. That leaves the market open to a disruption.

Warren Buffett has famously said: "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."

In the current state of affairs, this could be changed to: "Be fearful when others are complacent, and be greedy when others are fearful."

Good Luck.