The Weekly Slow Stochastic shows a reading now at 64.84. Above its signal line, heading up. Positive.
WEEKLY MARKET SUMMARY
This week was a four-day week and the XAO was up 1.3%. The XAO finished at 4574. Volume was below the 50-Day average every day this week. All S&P Industry sectors were up. Volume was weak on Tuesday and nothing spectacular on the next three days (but better than a couple of weeks ago).
Heres a chart of relevant movements in S&P Industry Sectors and Sub-Sectors for the past Five Days:
The two best performing sectors were Information Technology +2.9% and Materials +2.4%. The four defensive sectors (Telecoms, Utilities, Health, Consumer Staples) all performed better than the Financials +0.4%. Energy was the weakest, up 0.2%. Thats a dogs breakfast no discernible preference for cyclicals over defensives. While the defensives held their ground, there appears to be a shift out of Financials and into Materials.
Small Ordinaries were up on the week +3.5% while the 50-Leaders were relatively weaker, up just 0.2%. The punters were back this week and the Materials appear to be the beneficiaries.
Gold miners, once again, had a good week.
LONG TERM TREND
The XAO is back above the 4500 threshhold. The 13/150DSMAs remain bearish. Until the 13DSMA crosses back above the 150DSMA Ill maintain a bearish stance. That may mean giving up part of a solid rise. So be it.
Chart TWO Long Term Trend
Lets look at another view of the Long Term Trend Using a Monthly Chart of the XAO with a 10-Month SMA, and three indicators: Monthly MACD, Monthly RSI and Monthly Slow Stochastic.
Chart Three XAO Monthly.
Consider the following:
o The 10-Month SMA effectively supported the bull market that ended in 2007, formed resistance for the bear market that ended in 09, and supported the most recent bull market which appears to have finished in May 2010 when the XAO crossed below the 10-Month SMA. (Long-term investors could well use this for investment purposes, simply putting money into and out of STW, the tracking stock for the XJO, on the basis of these signals. Simple, clear and cost effective.)
o The Monthly MACD Histogram has turned down bearish.
o The Monthly RSI is below its mid-line (50) bearish.
o The Monthly W%R is below 50 bearish.
Together, these signals make a powerful case that the bull market from March, 2009 has ended. Of course, the market may decide to do something else. But the probabilities lie with the downside. We shall see. The market is always dynamic and one shouldnt be locked into a particular position, but be willing to change with the market. If whipsaws occur so be it. Thats part and parcel of investing/trading. What is important is the psychology of the market seems to have changed. Personally, now, rather than looking to buying dips Ill be looking to sell into rallies. Ill be systematically reducing long term holdings.
MEDIUM TERM INDICATORS
Chart Four Weekly XAO.
Comments on the Weekly XAO Chart (see below):
o The Weekly RSI.2 has risen above 70 indicating that the short-term trend has strengthened to the upside. o The MACD Histogram is turned up confirming the RSI.2 signal. The Histogram is in a downward channel. While it remains in that channel, any rally should be considered a medium term counter-trend rally o The MACD (not shown on this chart) remains below the Zero line bearish. o The StochasticRSI.30 is above 0.2 warning that a trend change could be occurring. A move above the mid-line, while the RSI.2 remains above its mid-line, is needed to confirm a medium-trend change.
SHORT TERM INDICATORS
Chart Five XAO, Point and Figure Chart.
Below is a Point and Figure Chart of the XAO. Point and Figure Charts have a long history and are notable for focussing on price action and de-emphasising time as a feature.
Chart Six XAO Daily Candle Stick Chart
The possibility of a new short-term uptrend in the XAO was signalled back in May by the positive divergences on several momentum indicators. Those were similar to the divergences on the charts back in early February which led to the good rally up into mid-April.
Currently, the StochasticRSI.30 is now above 0.8 signalling a strong up-trend. The RSI.2 is showing a divergence from price suggesting some very short term weakness. The downtrend line from mid-April has broken to the upside, confirming the uptrend signal from the P&F Chart.
No divergence exists on the MACD Histogram from the Index that usually occurs before a reversal to the downside.
The Index may be forming a bearish upsloping wedge but these can often take a long time to play out. Until a break below the lower edge of the wedge occurs, this is just potential but should be watched carefully.
At this stage, the Index is moving upwards nicely and has achieved some significant benchmarks this week.
THE OZZIE DOLLAR
Below is a daily Renko Chart for the Ozzie Dollar. AUD is in a short-term uptrend and is once again at overhead resistance.
The RSI has broken above its downtrend line and is above its mid-line. Thats a bullish scenario and supportive of further upmoves in the Australian stock market. A break by the MACD above the Zero line would be a further positive.
Chart Seven Australian Dollar Renko Chart
SECTOR ANALYSIS
This week the Sector Analysis show little change. Defensives now hold the top four rankings, while last week they held the top three rankings. All sectors except Telecoms are negative. This is a bearish profile.
The previous weeks ranking is shown in brackets.
Positive: o XTJ (Telecoms): +5.4% (1) Negative: o XSJ (Consumer Staples): -3% (2) o XUJ (Utilities): -5% (3) o XHJ (Health): -6.1% (5) o =XEJ (Energy): -7.7% (4) o =XDJ (Consumer Discretionary): -7.7% (6) o =XIJ (Information Technology): -7.7% (9) o XFJ (Financials): -9.1% (7) o XMJ (Materials): -9.7% (8) o XNJ (Industrials): -13.8% (10)
50 LEADERS
Last weeks reading as of Friday 11/6/10. No. Stocks above 10-Day SMA: 40 (80%) No. Stocks above 50-Day SMA: 19 (38%). No. Stocks above 150-Day SMA: 16 (32%).
The % of the 50 Leaders above the 10-Day SMA is above 80%. 80% represents the over-bought level. The other two indicators are still below the 50% level but headed in the right direction - upwards. The three graph lines are all in the right order blue, red, yellow.
Chart Eight 50-Leaders
Advancers and Decliners
Chart Nine Advancers and Decliners
The Advance/Decline Line did not confirm the bearish break below critical support by the XAO. The chart has now broken above short-term resistance and is headed higher. This is consistent with recent action in the XAO.
INTERNATIONAL
Charts Ten-Twelve: America, Hong Kong, Industrial Metals
The American chart (S&P500) has broken above its recent broad trading range and completed a double bottom with a big white candle on Tuesday. Since then, the SPX has stuttered a little while it digests that big rise. The 150-DSMA looms overhead and is the only significant resistance against further strong moves up.
The MACD Histogram shows no signs of a negative divergence from the Index. Both the RSI.2 (above 70) and the SochRSI.30 (above 0.8) show a strong uptrend is in place. Both need to drop below their mid-lines to confirm a reversal. Declining volume since late May is a concern.
On the Hang Seng (Hong Kong), a strong uptrend is indicated by both the RSI.2 and the StochRSI.30. Its rare for the RSI.2 to stay elevated for so long, so a fall in the near future can be expected. A break by both the RSI.2 and the StochRSI.30 below their mid-lines is needed to confirm a trend reversal.
Bullish features in the HSI and SPX are similar. The falling volume on the HSI is also a concern.
RSI.2 is below 30, indicating a short-term downtrend. StochRSI.30 has fallen below 0.8 warning of a trend reversal. Both must be below their mid-lines to confirm a trend reversal. The 13-Day SMA is below the 150-Day SMA and, unlike many major stock indices, has not turned up. The MACD Histogram is not showing any divergence from the Index, so more upside could be in the offing.
SUMMARY AND CONCLUSION Lets try to summarise all of the above and get some perspective on how the market is travelling.
XAO Charts Long Term: 13/150 MAs crossed negatively. Indicators on Monthly chart negative. Medium Term: Mixed signals more positive than negative. Short Term: P&F Chart Positive Indicators - Positive Volume this week below average every day negative.
Ozzie Dollar (Daily): Positive.
Sector Analysis: Profile Medium term - dominated by Defensive Sectors bearish Small-Ordinaries/50-Leaders Ratio Short term - Biassed to Risk Takers bullish
50-Leaders: Stocks above the 10-DaySMA: 80%. Overbought Stocks above 50DSMA and 150Day SMA Neutral
A/D Line: Positive
International SPX Double Bottom. Positive. Hang Seng Positive Industrial Metals. 13-DSMA needs to turn up to confirm a short-term uptrend. Longer term negative.
Seasonality: June is the second worst month of the year. (The last week is usually negative.) July is usually a strong month.
All of the above describes what is, not what might be. The overall picture is, however, mixed. The short term is strong. With July coming up, we may be seeing a medium term uptrend.
Im expecting some weakness in the coming week, but not enough to derail the burgeoning uptrend. But what I expect and what the market does can vary considerably. Keep watching the indicators.
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