Indices 25/3, page-25

It's the end of the 1st Quarter of 2024. XJO up just +4.09% for the quarter, but hit a new all time high. That compares to the American SP500 up +10.16% for the quarter - and a new all time high.

On the surface, everything looks rosy - but under the surface, some tectonic shifts are occurring which might affect where investors/traders put their money in the 2nd Quarter of 2024.

But before looking at that, let's get into the broad market chart for Australia.

Daily Chart for XJO

A burst of enthusiasm on Thursday, the last day of the Quarter, saw the XJO setting a new all time high, surpassing the high set on Friday, 8 March. The XJO finished Thursday at 7896.9 which was about 50 points higher than the previous high of 8 March.

Since the beginning of November, XJO has been up +16.46%. The SP500 in the same period has been up +25.07%. (It should be remembered that the structure of the Australian market is very different from the American market. The Australian market is dominated by Financials and Materials. Together, those two sectors make up about 50% of the Australian market. In contrast, the two biggest sectors in the U.S. are Technology and Health Care, making up about 40% of the market. Materials in the U.S. makes up just 2% of their market, whete in Australia, Materials make up more than 20% of our market. The biggest sector in the U.S. is Technology, making up about 25% of the market, while in Australia Technology makes up 2% of the market. So it would be a mistake to expect the Australian market to carbon-copy the U.S. The moral of this story is that Australian investors should diversify their holdings with some ETFs strongly featuring the U.S. market.)

Back to here and now in Australia. XJO is in a strong up-trend and there's nothing in the chart to cause concern and suggest that a pull-back is imminent.

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, but NH-NL Cum would have been a steadying influence.

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

 
 Sector Changes this Week.

Only one sector was down this week, Information Technology, -0.79%. The next weakest sector (relatively) was Financials +0.85%.

The two strongest sectors were Property +2.98% and Energy +2.85%.

Now, Information Technology (XIJ) and Financials (XXJ) being weak this week, should raise questions. They have recently been very strong. Is this week's weakness the start of a trend?

Sector Performance over One Month.

The chart below breaks the sectors up into three groups, Cyclical, Sensitive and Defensive. In a bull market I'd expect Cyclical Sectors to outpace Sensitive Sectors. And for Sensitive Sectors to outpace Defensive Sectors.

Now this also sparks interest. For the first time in many weeks, the Defensive Group (One month Av. +1.88%) has outpaced the Sensitive Group (One month Av. +1.21%).

Now that's a surprise - and suggests something is going on under the surface of the broad market which deserves attention.

Relative Strength Financials compared to Materials.

Above is a chart of XXJ (Financials). We can see that it made a high on 8 March, like the XJO, but hasn't been able to make a new high this week (unlike the XJO).

The part above to focus on, however, is the bottom panel. This compares the Relative Strength of XXJ and XMJ. Since mid March, the Relative Strength line has been falling, i.e., XXJ has been underperforming the Materials (XXJ) over the past couple of weeks.

I could go on showing similar charts for all sectors - but that would make this post overly long.

The following sectors are showing rising Mansfield Relative Strength compared to the XJO: XMJ, XEJ, XHJ, XSJ, XPJ.

The following sectors are showing falling Mansfield Relative Strength compared to the XJO: XXJ, XDJ, XIJ, XNJ, XUJ, XTJ.

The only leading sector which has maintained its strong rising Mansfield Relative Strength is Property. The others showing rising Mansfield Relative Strength are Resources (Materials and Energy) and Defensives, Health and Staples.

Those who have been weighted to Financials and Information Technology might consider reweighting their portfolios.

It also suggests, with Defensives beginning to show strength, we could be in a period of sideways consolidation rather than a strong up-trend. That seems to figure given that we're coming into a weaker time in the market.

The strongest six months are November - April. The weakest six months are May - October.

So we may be seeing a seasonal pattern about to begin. Sideways into August, down into September witha turnaround in October.

That's all wildly speculative thinking at this stage - let's see how it pans out.

Reweighting portfolios should, in my opinion, be a serious consideration.

I carried out a similar exercise with the American market, using the SP500 as a benchmark to compare Sectors. Remember that the two biggest sectors in the American Market are Technology and Health. Both of those show weakening Mansfield Relative Strength against the SP500. Again, if the two biggest sectors are starting to get the wobbles (relatively), the U.S. market could be in for a period of sideways consolidation.

That's all for this week.

Good luck.