Weekly Wrap. Week ended 5/4/24.What a difference a week makes....

Weekly Wrap. Week ended 5/4/24.

What a difference a week makes.

Last week, XJP finished with a new all time high. This week, it is teetering on the edge of an abyss. O.K., O.K. Let's not get carried away. Hardly on the edge of an abyss - but we did have a pull-back from the all time high.

Daily Chart for XJO

A Friday, the XJO pulled below its 20-Day MA, but intra-day buying in the afternoon pulled it back above the 20-Day MA. XJO finished down -1.57%.

The up-trend remains intact. Until we see a lower low and lower high, the up-trend remains safe.

Later on in this missive, however, I'll look at some stuff that is a teensy, little bit disconcerting.

NewHighs minus NewLows Cumulative.

This chart is a good long-term trend indicator. It is a lagging indicator and is often late to signal the start of a trend and to finish a trend. While it is trending up and remaining above its 10-Day Moving Average, long-term investors can rest easy.

The trend on this indicator has been inexorably up (despite pull-backs on the XJO) since mid-December. Nervous Nellies might have had the shakes during pull-backs in February and March, and again now in April, but NH-NL Cum is a steadying influence.

What's been happening this week in the Australian Sectors?

  Sector Changes this Week.

Only two sectors were up this week, Utilities +1.34% and Energy +1.33%. There tends to be a degree of cross-over between Energy and Utilities.

(XGD, Gold Miners, isn't a sector but a sub-index of Materials (XMJ). I include it in the chart as so many traders are interested in that segment of the market. )

The two weakest sectors were Property (XPJ) -3.99% and Technology (XIJ) -4.76%. Those two sectors have been consistent leading segments of the market. And that is a cause for some concern. When leadership is changing, it signals a change in the mind-set of investors. Both of those sectors are interest rate sensitive sectors, so investors are now beginning to doubt the timing and extent of rate cuts which were almost seen as a given in the near future.

Discretionary versus Staples Sectors.

From Market Beat:

Risk On or Off

Regarding consumer discretionary versus staples stocks, it boils down to the investor sentiment of putting risk on or taking risk off the table. Discretionary stocks are risk-on, as they are more aggressive and considered an offensive play during boom times when consumers spend for enjoyment. Staples stocks are considered risk-off, as they are more conservative investments tailored to economic downturns where consumers have tightened their wallets to only purchase the necessities during uncertain times.

In Australia, JB HI-FI is an example of a Discretionary Stock. Woolworths is an example of a Staples Stock.

Below is a chart of the Discretionary Sector of the ASX over the past 100 days - roughly the length of the current bull market.

The shaded channel on the chart top panel) shows the XDJ (Discretionary) in a down trend since mid-March - about three weeks.

The lower panels add a lot more information about what is going on in Discretionary particularly compared to Staples (bottom panel).

1. RSI14 provides a rough guide to bull and bear stages of a stock/sector. Above 50 - the item is bullish. Below 50 - the item is bearish. XDJ on RSI has been bullish since late November, but has fallen below the 50 level this week. That may be a temporary blip as the chart is now down to the 50-Day MA.
2. MACD is another indicator where judgements about bull/bear can be made. If the chart (not the histogram) is above the zero line, the item is bullish. (I've used a brief form of the MACD - 5/13/3). XDJ went bullish in early December crossed over its zero line - bullish, but crossed below its zero line a couple of days ago - bearish. Again, that may be a temporary blip because of possibe support from the 50-Day MA.
3. The bottom panel is a ratio chart of XDJ (Discretionary) and Staples (XSJ). When the ratio chart is rising - Discretionary is doing better than Staples - Risk on. When the ratio chart is falling, Staples are doing better than Discretionary - Risk Off. The ratio chart shows that Discretionary begun to underperform Staples since the end of February. Now that is hardly just a blip. That is showing a clear trend to the down side to the extent that the 20-Day MA heading down since mid-March.

The above suggests that investor mind-set has changed from Risk On to Risk Off, that reinforces the impression given this week by losses in previously leading sectors Property and Technology.

Investors should be thinking about defensive strategies, e.g., shifting allocations around between sectors, or, perhaps, even taking some money off the table.

My long-term trend finder, NewHighs-NewLows Cumulative, still isn't signalling a bear trend - that would suggest that investors should be out of the market.

That's all for this week.

Good luck.