23/10 Indices, page-24

In my Weekend Report yesterday, I as relatively optimistic about the medium term outlook for the Australian market. The ASX today was down again heavily and clearly finished below the 6900 support level, which is a bearish event.

So - have I changed my mind. Not at this stage. I'm getting more and more bullish non-confirmations of this bearish fall on a number of indicators that I keep. Some of these are arcane, but do add further weight to the thesis that we're not far from a turn-around. Tuesday is often called Turn-Around Tuesday by technical analysts. We'll see tomorrow if Tuesday lives up to its nick-name.

Here's the chart for XJO today:

The chart is clearly below the major support level of 6900 (round figures). We still have that pesky positive divergence showing on the MACD Histogram which suggests we're not far off a bottom.

Here are a few more charts with positive divergences which suggest that the ASX is not far off a bottom.

Above is a chart for NewHighs/NewHighs+NewLows.

I put a fair degree of weight on this data set. A positive divergence between the low of 6/10/23 and now is clear on the chart. 6/10/23 was the date of the major Hamas incursion into Israel.

Historical Volatility

Volatility is usually expected to rise during times of crisis. Volatility acts inversely to the stock market. Yes, HI has risen but is still well below the height seen in early October, and nowhere near periods of bearish sentiment back in July and March.

Bonds/Stocks

In crisis periods we expect Bonds to outperform Stocks. Bonds are considered a "safe haven" in times of crisis. Below is the chart of the ratio of Bonds/Stocks.

Since early October, Stocks have performed surprisingly well compared to Bonds. The Ratio of Stocks/Bonds was deeply negative in early October - now it is slightly positive in favour of Stocks. Curious.

Health.

The big surprise in the market today was the good performance of the Health Sector which has been in the dog house for many months. Today XHJ was the best performing Sector on the ASX, XHJ up +1.53%. This might just be a turning point for Health for long-suffering investors in Health Care Stocks. Still - we need to see a new up trend develop before getting too excited. But a bullish engulfing pattern coming at the end of a long down trend is a good start. And, we have a confirmed positive divergence on the MACD Histogram, i.e., the histogram is moving up from a higher low.

Good luck