Daily Chart - XJO
XJO down -1.11%
XJO has failed at a major horizontal resistance level - about 7891. The lower end of a wide trading range is at 7567.
On Friday, XJO fell heavily, down -1.08%. That was enough to switch my three Super Trend Lines to all blue - bearish. It rarely pays to sell after a big down day. Look for a bit of upside here.
he chart finished more or less at the 50-Day MA and the middle of the wide trading range, 7567-7891. We can expect some consolidation here, before we see, I believe, a fall to the lower end of the current trading range, 7567. XJO is now at 7728. That's a further fall of about 160 points or, in round figures, about -2%.
American Market.
The U.S. market has become bifurcated, with Industrials falling and Technology rising to a new all time closing high. This week, Dow Jones Industrial Average fell -2.33% and the Nasdaq rose +1.41%. That's a big gap. The major difference appears to rest with just one stock - Nvidia - which is in the Nasdaq but not in the Dow Jones. Nvidia was up about 15% this week.
Nvidia is a world leader in Artificial Intelligence, which, if you believe the hype, will usher in a new Industrial Revolution.
I'll take all that with a grain of salt. Believing hype is a sure way to the poor house.
In Technical Analysis, two main trading theories exist: 1. Follow the Trend. 2. Reversion to the mean.
These are not mutually exclusive. All trends must end, usually at an extreme - so then, usually, we get reversion to the mean. (And often, an overshoot of the mean).
The question is: When does a trend reach an extreme?
Statistics suggests: When a trend is three Standard Deviations from the mean. 3SDs encompass 99.7% of data. (Of course, it could go to 5SDs. Nothing is set in stone in the markets.)
Here's the daily chart for Nvidia.
I've overlaid on the chart three sets of Bollinger Bands with one, two and three standard deviations and the mean set at the 20-Day Moving Average.
Back in mid-April, Nvidia fell down to lie at the lower 3SD Band of the BBs. Force Index (measured on price and volume) also fell to a big spike down.
On Thursday and Friday, Nvidia reached up to the higher 3SD Band of the BBs. Force Index has also spiked up to a new high.
Is it time for Reversion to the Mean to come into play? Probably.
If it does, the boom in the Nasdaq will end and it will follow the Dow Jones to the downside.
Meanwhile, Inflation remains stubbornly high and the Federal Reserve is not lowering interest rates any time soon.
Sector Performance this week.
It wasn't all doom and gloom on the Australian market. Four sectors were up while seven were down.
Best performer was Information Technology +2.8%. Some of that was probably influenced by the rise in the Nasdaq, but more specifically, in the Ozzie context, big jumps in Xero and TNE, XRO is one of the 20 Leader stocks on the ASX. Xero was up >8% this week. That was eclipsed by TNE, up >12%.
Utilities, a very small sector, was up +2.34%. Utilities tends to be influenced by Energy which was up +1.23% this week.
Worst performing sector was Discretionary -4.34%. The biggest stock in Discretionary is Wesfarmers, down nearly 7% this week after a broker down-grade.
Morgan Stanley pulled the pin on Wesfarmers giving a likely target of $56.20 - it started the week at $68.21. Their target is aligned more or less with its 50-Week Moving Average. Reversion to the Mean anyone? Discretionary was also affected by a big fall in Tabcorp -6.02%.
20 Leaders.
The 20 Leaders make up a bit more than 50% of the Australian market. What happens in the 20 Leaders largely determines what happens in the ASX.
This chart is more or less a duplicate of the XJO (ASX200). We have a trading range and the chart finished close to the 50-Day MA.
Here below is the performance of individual stocks in the 20 Leaders.
ANZ is the second stock in from the left. Its ticker symbol is obscured by the % change. ANZ down marginally -0.07%.
The outliers are XRO +8.41%, WES -6.68% and TLS -5.99%. Two out of the three are mentioned above. Telstra came out during the week with a report stating that it was cutting its work-force. (See here for details.). The market didn't like the announcement - and the stock sold off.
XRO is now overbought (in the Positive 2-3 BBs) on a volume spike. So it is a candidate for a short-term reversion to the mean (down). WES and TLS are now oversold (in the Negative 2-3 BBs) on volume spikes and are candidates for a short-term reversion to the mean (up). (This is for swing traders only - not position traders.)
The following 20 Leaders are bullish with three positive Super Trend lines: MQG, QBE, TCL, XRO, WTC. That's just 1/4 of the 20 Leaders.
Bearish with three negative Super Trend lines: BHP, NAB, TLS, WBC, WES, i.e., 1/4 of the 20 Leaders.
The remaining 10 stocks (half) are neutral with mixed Super Trend Lines.
All of that fits neatly into the range thesis. XJO and XTL finished the week about half way between the upper resistance level and the lower support level.
Long-Term Investment Indicator
My Long-Term Investor Indicator is based on New Highs minus New Lows Cumulative. While the NH-NL CUM line remains above its 10-Day MA, the Long-Term Investor can maintain their bullish positions.
Conclusion.
I'm looking for a short-term consolidation period around the current level on the XJO. That will likely be followed by further downside to test the lower support level of the wide trading range of the XJO.
All speculation of course. Not investment advice. I write this as much for my own information as anything. I hope it may also be educational.
If you are a Doom and Gloomer, you might be interested in the following from John Hussman: This is where you start Bear Markets From.
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