Indices 25/07, page-189

Weekly Wrap - Week ending 29 July, 2022.

XJO Monthly Chart.

It was a strong month for the XJO, up +5.74%, but technically the monthly chart remains bearish.

Both Supertrend Lines remain blue (bearish). 8-Month EMA is headed down. Hull MA13 is headed down.

All indicators are on the bearish side.

The XJO is finding support at the 50-Month EMA where it also found support back at the end of 2018.

Weekly Chart.

XJO had a strong week, up +2.26%. The chart is bullish.

The index has found support at the 200-Week MA and finished above its 8-Week EMA which is pointing up. HullMA13 has turned positive.

Dynamic RSI(14) and Dynamic Zone Stochastic have given a "buy" signals.

Both Supertrend lines have switched from blue to yellow - bullish.

All of that is bullish.

Monthly and Weekly Charts are out of sync (Monthly - bearish, Weekly bullish) so we are seeing a trend change in the medium term.

Daily Chart.

XJO has broken above resistance of the 50-Day MA and now is faced with horizontal resistance at 6982. XJO finished Friday at 6945.

Hull MA13, two Supertrend lines and 8-Day EMA are all heading to the upside - bullish.

Dynamic Zone RSI14 and Stochastic Momentum Indicator are both now overbought.

The short-term trend is bullish.

For this short-term trend to continue, XJO must rise above horizontal resistance.

The Weekly and Daily charts are both bullish but out of sync with the Monthly Chart. The most likely scenario is more upside.

SP500 Daily.

SP500 is bullish in both the Short-term and Medium-Term. While it remains below the 200-Day MA the Long-term remains in doubt.

Dynamic Zone RSI and Dynamic Zone Stochastic are both overbought and can remain so for some time. But they are giving out caution signals.

SP500 is headed up to the 50% resistance line of the fall from March to June. That also corresponds with the top of the congestion zone which occurred in June.

The zone between 50% and 61.8% retracement represents a possible resistance zone.

Given the overbought nature of RSI and Stochastic, I think the coming week will be a tough one for the SP500. It will probably depend on how big company reports and economic news are received in America. So far, the reports have generally been positive.

Here's the corresponding zone for the XJO:

Sector Changes - past week.

The Weekly XJO chart was up strongly and breadth was good with eight out of eleven sectors showing positive results.

Of the three best performers, two were resource sectors, Materials (XMJ +4.94%) and Energy (XEJ +3.36%). Splitting those two was Property (XPJ +3.9%).

Worst performers were Health (XHJ -0.83%), Telecommunications (XTJ -0.13%) and Consumer Discretionary (XDJ -0.69%). No doubt XDJ is being affected by the interest-rate crunch imposed by the Australian Reserve Bank.

Sector Strengths by RSI.

RSI (Relative Strength Index) is calculated using the default setting of 14 days - almost three weeks of trading. It provides a more reliable guide to changes in sectors than the one-week results which can jerk around quite a lot and, thus, RSI is probably a more reliable guide to recent strength in the sectors. (Click here for a description of RSI.)

All eleven sectors have readings above 50 - which is taken as a sign of bullishness.

The sectors with the strongest momentum are, Financials (XXJ) RSI 70.43, and Property (XPJ) RSI at 67.07. Three other sectors (XSJ, XNJ and XIJ) are all above RSI 60. So we have a strong, bullish market

As a general rule, its best to follow strong stocks in the strongest sectors.

In XXJ, the two strongest large cap stocks are NAB (RSI 71.01) and BOQ (RSI 69.57).

In (XPJ), the two strongest large cap stocks are GMG (RSI 68.75) and LLC (RSI 68.23).

Do your own research on those stocks.

Breadth:

1. New Highs - New Lows Cumulative.

This is one of the important breadth indicators. Unless breadth is solidly positive, the market is always under threat.

NH-NL Cumulative is on the brink of crossing above its 10-Day Moving Average. New Lows have dropped consistently in recent weeks, Friday saw the balance between NH and NL tip to the NH 15/5. Another strong week on the XJO could produce a switch in the NH-NL Cumulative to bullish. Continue to watch.

This metric trends very strongly. As such it is a valuable guide to the long-term investor, but not much use to the short-term trader. It gave a timely signal to go long in May 2020, and a sell signal in January 2022. That's a good run for the long-term investor.

If NH-NL Cumulative gives a new buy signal, I'll put that up on my blog during the week rather than wait for the week-end.

2. ASX Advance-Decline Line.

This is another important indicator of breadth.

The ASX Advance-Decline Line turned bullish at the beginning of July, predicting the good month we've seen for stocks in July. At this stage it remains bullish. Watch for a turn-down to predict a bearish reversal.

3. Strong-Weak Stocks Cumulative.

This chart has turned bullish being above its 5-Week MA.

% of Stocks above key moving averages.

1. % of stocks above 10-Day Moving Average: Last Week 73%, This Week 78%.

2. % of stocks above 50-Day Moving Average, Last Week 52%, This Week 70%.

3. % of stocks above 200-Day Moving Average, Last Week 25%, This Week 31%

These figures suggest that the market is bullish in the short and medium term, but the long-term trend is still in doubt. That confirms the long/medium/short term readings on the Monthly/Weekly/Daily XJO charts.

I'd like to see all of these above 50% to feel comfortable about the longer term bull market.

Conclusion.

1. Monthly, Weekly and Daily Charts are not in sync, one bearish, two bullish. Stay with the short/medium term trends until other-wise indicated.

2. SP500 Daily has been bullish in the short/medium term, but is approaching a key reversal zone. XJO is in a similar situation.Watch.

3. Breadth according to Advances-Declines is improving but we still have to wait on NH-NL Cum to break to the upside.

4. XXJ and XPJ have strongest momentum. Look to strong stocks in those sectors. Do your own research on stocks in those Sectors.

5. I'm expecting a consolidation or retracement to occur in the latter part of the coming week.

In America, reporting season continues. Results, which so far have been generally favourable, will continue to sway the market.