XJO (ASX) Indices 08/04

Weekly Wrap. Week ended 14/4/24

I have just one word imprinted on my frontal lobes this week - that's where executive functioning occurs. The one word is: SELL. Why? Have a look at the chart for IOZ - the largest ETF tracking the XJO:

I've notated this chart quite heavily - so it should be self-explanatory.

But - to put it all into point form:
IOZ was in a bearish rising wedge which broke to the downside this week.
That break also coincided with a failure to rise back into the narrow Bollinger Bands (2/0.5) marked on the chart.
RSI14 broke below its 50 line - the line between bullish and bearish zones.
Short term MACD (5/13/3) broke below its zero line this week.
CCI broke below its zero line this week.

The one remaining piece of the puzzle is the 50-Day MA which was providing support. Friday night in the U.S., major indices fell heavily. (Dow -1.24%, SP500 -1.46%, Nasdaq -1.62%). Now we have the tragic news of Iran attacking Israel.

That 50-Day MA support level will break on Monday. Welcome to a bear market.

SP500 Daily Chart
The SP500 shows a similar set of bearish conditions as the Ozzie market. Break down on the chart itself with support at the 50-Day MA. Break downs on indicators. Given the events in the Middle East, the 50-Day MA will fail as support. Likely target is the Point of Control shown on the chart - which is about 7% below the current level.

All eleven U.S. Sectors were down on Friday night. The best, relatively, was a Defensive Sector, Utilities -0.76%. The next best, relatively, was another
Defensive, Staples -1.01%. The worst was a Cyclical Sector, Materials -1.77%.

VeryStrong Stocksversus Very Weak Stocks

The current bearish situation hasn't come out of the blue. The context has been building for some time and obvious in the performance of Very Strong Stocks versus Very Weak Stocks.

Each week, I rate every stock in the ASX100 on the basis of seven criteria, with a possible total of 14 points for a Very Strong Stock and Zero for a Very Weak Stock. I then take a five week average of the total summed results for the Very Strong and Very Weak Stocks.
Here's the weekly chart which goes back to February 2022.
The most recent peak for Very Strong Stocks occurred back in mid-February, 2024 which was two months ago. The chart for Very Strong Stocks has been falling since then. That peak was also equal to the next most recent peak which occurred back in late December, 2023. So we've had a double top occur in the Very Strong Stocks. Remember that this is a lagged indicator so the actual situation is now much worse than indicated in this chart.
Internals can fall while the market continues on upwards if strength remains in a few large cap stocks. That is what has been happening in the Ozzie Market.

The largest sector in the Ozzie market is Financials, which contains, of course, the big banks.

Daily Chart for Banks

The Daily Chart for Banks topped on 8 March and has developed a bearish trend since then. The broad market has gone on to a new all time high at the end of March. So the banks, probably the most important sub-index in the Australian market, hasn't confirmed the recent high. That's another non-confirmation indicating that there was something not quite right with the Australian market.

Gold Miners Index
Gold Miners (GDX) in contrast to the Banks has been in a strong up-trend - clear in the above chart.

Gold, of course, is one of the go-to items in times of inflation and geo-political tensions - the ultimate "safe haven". We can expect further divergence between Gold Miners and the Banks on Monday and probably at least for the next week. It's difficult to see the Middle East crisis resolving quickly despite
Iran saying it has concluded its direct attack on Israel. (From the BBC: Iran suggests it will not launch further strikes.)
That's enough doom and gloom for this week.
I can only hope all the carnage in the Middle East and Ukraine can end. There seems no end in sight in either theatre.
Good luck