XJO (ASX) 29/01 Indices

Weekly Market Wrap for the ASX. Week ended 2/2/24

XJO
XJO had a great week, up +1.91%, although that rise was hit by a hiccough on Thursday when it fell -1.2% but recovered on Friday when it rose +1.47%
Wed-Fri were three days of high volatility coming at the top Bollinger Band. That may suggest that the next move will be to the down-side. Negative divergences on RSI and MACD re-inforce the idea that the next move will be to the downside. ASX Futures fell heavily on Friday night, down -0.7%. So we do seem to be in for some short-term moves to the down-side.

The market does have a bullish bias with the 50-Day MA above the 200-Day MA - that suggests that any dip is likely to be bought.

IOZ Resitance and Support.
IOZ is a tracking ETF for the XJO.

I've marked Resistance and Support on the Chart. If the market fails at overhead resistance, then two obvious support levels exist on the IOZ chart, at 30.15 and 29.42. IOZ closed at 30.92 on Friday. First Support level is -2.65% lower. Second Support level is -4.85% lower. First Support level more or less coincides with an import oblique level on the Andrew's Pitchfork. That would appear to be the most likely support level, i.e., 30.15. That's about 7510 on the XJO.

SP500
The American market had a hiccough on Wednesday (echoed in the ASX on Thursday) after Powell indicated no rate cut in March. But - America is in the grip of reporting season and it surged on Thursday and Friday. Friday's rise was largely the result of a big surprise from Meta (one of the Magnificent Seven Tech stocks) when it put on 20% in one day. WOW!

Amazon, another of the Magnificent 7, also had a great day on Friday. But it was up only (ONLY!) +7.87%. Amazon had reported on Thursday when it was up +2.63% - but that was at the lower end of a Daily Range of 12.2%. No doubt the impetus from Meta on Friday spilled over to Amazon. Friday's high was still lower than Thursday's high. Weird volatility.

Amongst other Magnificent 7 Stocks, Apple also reported on Thursday. It also had a volatile day with a Daily range of 7.03%, but it finished down on Friday -0.54%, but above its opening price and bouncing off its 50-Day MA. It is currently at the low end of a sideways channel.
Only one of the Magnificent Seven hasn't reported so far - Nvidia, but it doesn't report till near the end of February.

While all eyes have been on the Magnificent Seven - pushing the U.S. market higher, breadth in the U.S. has been abyssmal. For more on this, read Arthur
Hill's commentary. When breadth is poor, a market is being driven up by a few stocks so any shock could unsettle the market very easily.

Two Dow Components, McDonald's and Caterpillar, report on Monday.

What's been happening this week and this month in the Australian Sectors.
Sector Changes this Week
All Sectors were up this week, with the relative weakest, XMJ (Materials) up +0.19%.
Best three were XEJ(Energy) +3.8%, XPJ (Property) +3.62% and IT (XIJ) up +2.97%.
Gold Miners, an industry subsection of Materials, also saw a return to form, up +3.62%.
2. Sector Changes this month.
Comparing the Weekly Change with the 4-Weekly Change, we can see XEJ (Energy) has been strong on a weekly and monthly basis. XPJ and XIJ have surged in the past week compared to early in the month.

Those three sectors look the most likely improvers in the next month.

Long-Term Trend.

Cumulative New Highs minus New Lows provides a handy guide to the long term trend for long term investors. It is currently headed up and above its 10-Day MA - bullish. Stay with the trend.
Seasonality.
In February, overn the past seven years, XJO has been up four years and down three years. The worst was 2020 when Covid hit and XJO fell -8.21%. The best was 2019 when XJO rose in February +5.19%. Those figures don't reveal much about what might happen.

The median figure for February during the past seven years was a rise of 1% in 2021.

February, 2023 was down -2.92%. So, maybe we'll be up this February?

I think looking at February in the past seven years of XJO (IOZ) tells us little about what might happen in February this year rather than those historical notes. Our best bet is to watch the current chart.

Market Breadth.
The following chart shows the XJO to an Equal Weight Chart. The XJO is a Capital Weighted Chart which means the biggest stocks have more weight in the chart than smaller stocks. In an Equal Weighted Chart all stocks are given an equal weight. This provides an insight into market breadth. If the Equal Weighted Chart doesn't keep pace with the Capital Weighted Chart, then a few big stocks are pushing up the XJO while smaller stocks may be languishing.
XJO (Cap weighted) is shown with blue and grey candles, MVW (Equal weighted) is shown with blue and yellow candles.

MVW was fairly closely matech to XJO from September to December, but then started to lose ground.

While XJO is now at a new high, MVW is now at a much lower level than it was in late December. Much of that is attributable to outperformance in Financials, especially the banks. If the big banks start to take a step backwards, our market is likely to go down as well. But - hasn't that always been the way - our stock market is overweighted to banks - and the big miners - they are the controlling factors.

Conclusion.

The Australian market has had a good January, and the past two weeks have been excellent, up 3.8%. It might be time for a reality check. Market breadth is weakening, the market is overbought and negative divergences are showing on indicators.. A bit of a pull-back could be healthy for the market. Watch for support at 7510 on the XJO.

Good luck.