I am increasingly confident that a rally on the Australian market is close. There is plenty of meat in the Report.
EXCERPTS FROM MY WEEKLY REPORT
The XAO is currently sitting at 5400 – a fall below that would suggest a test of the March and January lows around the 5200 mark.
A drop below 5200 and a negative crossover on the weekly MACD would be “launch the life boats” time.
In the 50 Leaders Section (below) I note that 24% of these stocks are above the 50-Day Average. In America, the Dow (the equivalent index), there are no stocks above the 50-Day Average. Other Indices in America are doing much better than that. Here are some interesting stats for the American market (% of Stocks below 50 Day Average):
1. The Dow Jones Industrial Average (the Dow) - 0% 2. S and P 500 (equivalent to our XAO) - 17.5% 3. S and P Mid Cap - 32% 4. Russell 2000 - 43.1%
Whenever the Dow has hit 0% below the 50-Day Average a rally has occurred soon after. The last time this occurred was in February 2003. That was the beginning of the bull market in America. That does not mean that a new bull market will start now – but a tradable rally of some weeks should be close.
On the New York stock exchange, the number of stocks hitting new lows at significant Index low points were:
• August 2007 – 1132 new lows • January 2008 – 1114 new lows • March 2008 – 759 new lows • Currently – 275 new lows
Given the above, it can be seen that the Dow Industrials is the only Index close to testing its March low. It is performing much worse than other indices, including our own broad market index, the XAO.
The number of new lows is not at a figure where a test of the March low by the broader American market looks likely.
The Dow and the broader market are likely to rally soon.
Our market will follow.
The INDICATORS
The All Ordinaries Index (XAO):
• The daily MACD is negative and below the centre line. This when combined with the break of the up trend line from the March low provided a “lighten up” signal for active investors. • The weekly MACD is positive for the ninth week (this is the “master" signal). Until this signal has a negative crossover, we must consider the current intermediate uptrend intact. • Weekly Slow Stochastic has had a negative crossover and has been heading down for weeks. Readings over the past five weeks have been: 87, 66, 38, 22.5 and 10.09 This is now at an extreme over-sold level on a weekly basis. The turn around time from peak to trough is typically 4-6 weeks. So a bounce is expected soon. • The daily Slow Stochastic readings for the past six weeks have been: 89, 21, 25, 20.4 and 17.3, 20.2. The daily Slow Stochastic has been bouncing along the bottom of a range around the 20 mark for five weeks. Again, this is an indication that a bounce is overdue. • Weekly RSI is now at 40.4, below the mid-line (50) which is another marker sometimes used to denote the difference between bull and bear markets. It has also broken below its up trend line from the March low. • Readings for the daily RSI for the past five weeks have been 73, 55.5, 47.7, 43.3, 37.3, and 35.31.
In the past few weeks, the charts have given six reversal signals:
1. The weekly Slow Stochastic has a negative crossover 2. The daily RSI has broken below its up trend line. 3. A negative divergence has appeared on the On Balance Volume. 4. The daily MACD has had a negative crossover. 5. The uptrend line on the daily chart has been crossed to the downside. 6. The XAO crossed below the support lines at 5700 and 5600.
Some readings are at levels where reversals upward can occur. The current retracement may be close to an end – but the short-term trend is still down.
A negative crossover of the weekly MACD and a fall below 5200 would suggest a complete exit from the market. I don’t expect that this will happen.
50 LEADERS
The situation in the last report was:
Thirty stocks were positive on the weekly MACD (60%). Two of these were positive on both the Weekly and the Daily MACD (4%).
This week twenty-one stocks are positive on the weekly MACD (42%). Five of these are positive on both the Weekly and the Daily MACD. (10%). An improvement. The stocks registering positive readings on both the weekly and daily MACDs were:
BHP, BSL (Bluescope Steel), ORI (Orica), Wesfarmers (WES) and (WOR) Worley Parsons.
NOTE: While the overall market has deteriorated, the number of stocks positive on both the weekly and daily MACDs has improved from TWO to FIVE.
All of these are completely or partly related to the Resources Sector. Wesfarmers, which is a highly diversified company, has strong interests in coal mining. It also has a strong retailing function with Bunnings and Coles. Worley Parsons and Orica provide services or products for use in the resources sector.
Last week 9 stocks were above their 50-day moving average (18%). This week 12 stocks are above their 50-day moving average (24%). Another improvement.
Looking at Stocks above their 10-Day Exponential Moving Average, the results for the last six weeks have been 42 stocks (82%), 19 stocks (38%), 15 stocks (30%), 23 stocks (46%), 7 stocks (14%) and this week 12 stocks (24%). Another improvement.
Last week only two stocks were positive on all four indicators (daily and weekly MACD, 10 day and 50 day exponential moving averages). These were Wesfarmers (WES) and FGL (Fosters.
This week Four stocks (8%) (another improvement) are positive on all four indicators:
BSL (Bluescope Steel), ORI (Orica), WES, (Wesfarmers), WOR (Worley Parsons).
An improvement has been seen on all of the above measures in the past week; meanwhile the XAO has shown no improvement.
Last week, 17 stocks were negative on all four indicators. This week 21 stocks are negative on all four indicators (42%):
AMC (Amcor), AMP, ANZ, AWC (Alumina), AXA, BNB (Babcock and Brown), CWN (Crown Casino), FXJ (Fairfax) LLC (Lend Lease), MAP (Macquarie Airports), MIG (Macquarie Infrastructure), MQG (Macquarie Bank), NCM (Newcrest Mining), NWS (Newscorp), QAN (Qantas) QBE, TCL (Transurban), TEL (Telecom New Zealand), TOL (Toll Holdings), TLS (Telstra), TOL (Toll Holdings) WBC (Westpac), WDC (Westfield), WOW (Woolworths).
This group has expanded dramatically in the last two week and is now representative of the wider market. Banks, Telecoms, Miners, Insurance, Big Retailers, Infrastructure and Property Trusts are all listed. The notable exceptions are the Energy stocks and Health Care.
The deterioration in this group is congruent with the faltering general market.
CONCLUSIONS
Last week I said that I doubted the XAO would be lower this week. There wasn’t much in it – the XAO this week finished marginally lower on a close basis while the previous week was marginally lower on an intra-day basis. The picture being presented by internal measures (The Indicators) has shown a marginal improvement this week.
On Friday international markets (UK and USA) were down. The past two weeks we have tended to follow the UK rather than the USA. The UK index (FTSE) was down on Friday as was the Dow Jones Industrials (and all other American Indices). So, next week looks like starting poorly. But that may be the last of it.
The Banking Sector in America on Friday seemed to have a capitulation day – heavy volume, down early and then a reversal. As the financials in America have been the dead weight for their market, a positive sentiment there would be highly significant. Follow through buying on Monday night in the USA banking sector would be confirmation of a reversal.
If we don’t get a turn around early next week, then we will be revisiting the January and March lows around the 5200 mark.
(20min delay)