Our market stabilised this week, but market structure is still clearly defensive with the two stand out performers both defensives.
MONTHLY CHART – XJO
A new month. The monthly candle remains close to the uptrend line from early 2009.
The chart is currently at 4063.9. The monthly 10EMA is at 4244.2.
MACD Histogram, RSI, CCI and Stochastic have turned down. Monthly Stochastic is on a sell signal Caution.
Buy/sell signals are taken only at the end of each month. Action during the month is disregarded. A sell signal was triggered on Thursday as the index closed below the 10MEMA. (That could generate a couple of actions. Sell the STW, if that's your vehicle of choice – or buy AUD Gold to hedge the portfolio.)
WEEKLY CHART – XJO
The chart shows the stabilisation that occurred this week. Happening at the lows means more downside is likely.
RSI (34.3) and CCI (152.4.3) are at oversold levels. They could go lower but much further down would be unusual. Stochastic (5) is oversold. It’s not unusual for it to stay there sor some weeks.
A break of oblique support would suggest a test of the September 2011 lows (red horizontal line).
With such oversold levels, the market is primed for a reaction rally – but until it happens – it’s just a hypothetical.
DAILY CHART – XJO
This week the daily action was particularly interesting. The daily chart shows the up/down action this week. Two days up and three down to finish mildly positive. But the three down candles have long lower tails – indicates buying pressure.
Momentum indicators have all turned back down and have room to move lower.
Although America was down very strongly last night, this week in Australia indicated some confidence in the market. That will evaporate on Monday – but could just as easily re-appear.
On this chart, the medium term trend is down, the short term trend is undecided.
AUD/JPY – WEEKLY
AUD/JPY continued on its downward path this week. It has now reached a minor horizontal support and bounced a little.
I’ve marked on the chart how the indicators provided guidance about the impending fall. An almost perfect example of how Technical Analysis can help the trader/investor. If only they were always so clear – but they’re not.
We now have to see the reverse of those cross-overs before we can expect the currency to turn up. The indicators look oversold but haven’t yet signalled a turn in the market.
The AUD/JPY is watched carefully overseas as it provides insight into the “risk on” risk off” speculative trade – and flows of liquidity. While the AUD/JPY is falling, “risk off” dominates. That’s a negative for stock markets.
SMALL ORDINARIES – WEEKLY
Small caps often lead the market both up and down.
In line with the general market, Small Ords has stabilised at the low end of the recent fall.
Like every other chart, this one is very oversold.
When we see the Small Ords improve relative to the broad market (XJO) we might be seeing the end of this pull-back. (See bottom pane.) The RS chart XSO/XJO notched up imperceptibly this week. Not enough to give hope.
A break below the red horizontal support line would be very bearish for the Small Ords and the broader market.
DOW 30 – WEEKLY
I presume everybody is aware of the Dow’s poor performance on Friday. So I thought I’d take a longer term view and show the Weekly Chart.
The chart remains within a broad upsloping channel. The Index still has a little room to move to the down side. Even a small break, if it recovers quickly would not be disturbing. (See Sept/Oct 2011.)
The momentum indicators are oversold but can remain so for weeks on the weekly chart.
Volume has dropped off in each of the past two weeks. Conviction in the selling seems to be easing.
This is primed ready for a rebound.
OZ MATERIALS WEEKLY
The Falling Wedge pattern is a bullish pattern – but it can break either way. We still need to see a break above the restraining line of the wedge to be confident of a trend reversal. (And that can always fail too. I’m in pessimist mode today.)
The next support level still looks likely as a target before we get a significant move up.
The past two weeks has seen some weakening of the extreme oversold readings on Indicators; but all we are seeing at this stage is a consolidation at the lows. And the long upper tails on the last two candles suggest selling pressure.
Although Materials outperformed Cons.Staples this week, the improvement barely budged the Relative Strength indicator (bottom pane). XMJ still has a lot of work to do.
(Like the XSO/XJO Relative Strength, the XMJ/XSJ Relative Strength is a proxy for trader sentiment – bullish or bearish. )
DAX (GERMAN) Daily
The DAX has now reached the mark set by the standard measure rule. Last week I said if it reaches there, “it might be time to think about longs.” A betting man would now go long with tight stops. But it could go lower – so tight stops would mitigate any loss.
The CCI has reached an extreme over sold reading of 270. Rarely do indices get to 300. So we might be at a bottom. The bottom? We might need to see a positive divergence on the DAX before that happens.
SHANGHAI – Daily
Shanghai is one of the bright spots in the universe. Despite all the talk of hard landings for China, the Shanghai Index has weathered the recent storm on global markets quite well.
The past week saw the Index climb back above the 30Week EMA and is hugging the neckline of the old H/n/S Pattern.
The chart pattern can also be read as an ascending triangle which is bullish. A break above 306 would complete the pattern.
Momentum Indicators are generally in no-man’s land – the middle of the range. These could go either way.
Watch.
GOLD IN AUD – WEEKLY
In the wider scheme of things Oz Gold (Gold priced in Australian dollars) trends inversely to the broad Australian market (XJO), more or less. In recent weeks Oz Gold has been sideways trend and nudging against the restrainging line of the down trend channel in place since August, 2011..
Gold in AUD had a great rise on Friday night, up 4.3%. It has clearly broken above the oblique down trend line and is now faced by horizontal resistance. Another solid break upwards here would suggest we’re in a July/Aug 2011 scenario. If it fails here, then stock markets have probably seen a bottom.
(Oz Gold gets a double whammy when the Oz currency drops against the US$ and the Gold price in US$ rises. One of the safe havens for “hot money” in times of stock market stress is Gold (US$). At such times, the Ozzie Dollar also falls.)
For a pure buy’n’hold investor, some exposure to Oz Gold has much to commend it, particularly as a hedge against falls in the general market. Plus, the long term performance has been positive. (Usual caveat – past performance is no guarantee of future performance.
Note. Gold priced in Oz Dollars is quite different from Gold priced in US$ – the figure usually quoted in the media. During the GFC – POG in US $ fell sharply along with other asset classes while the POG in AUD rose sharply.
COPPER WEEKLY
Copper is a ubiquitous industrial material and the Copper chart is usually seen as a proxy for sentiment about world economic strength.
The chart appears to be in a medium term uptrend channel. This week’s action took the index down more or less to the bottom of the channel. A break lower would be negative
A break below the big red horizontal support line would mean a very large (somewhat sloppy) H/n/S pattern spanning 2 1/2 years will be complete. If that happens – I’ll be looking to buy land at Tara and build a bunker.
Momentum Indicators are low enough to suggest a bounce is possible.
Watch.
CRUDE OIL WEEKLY
The price of crude oil fell sharply this week and is now at the lower edge of the equilibrium zone.
Highs and lows in crude oil tend to occur at or sometimes lead highs and lows in the American stock market (Dow 30 and SP500). Interestingly, CCI above +200 and below-200 tends to be leading indicator.
All indicators are at oversold levels. A reaction bounce is likely.
If the Oil price falls out of the equilibrium band then it could be headed for 65.00 – and I’ll be stocking the Tara bunker with tinned food and ammo.
Watch.
COMMENTARY & CONCLUSION
I’m in two minds this week. The fall on Friday night on the Dow 30 and SP500, after a consolidation of some days, suggests further falls ahead. Many charts are, however, at levels where rebounds can be expected. See, for example, DAX, Copper and Oil. These have reached levels which, under normal circumstances, would produce “a bottom” if not “the bottom”. But these may not be “normal circumstances” in which case we can continue to see further falls similar to July/August, 2011. A worst case scenario would be 2008.
The media have cranked up the fear campaign to crescendo levels. Take, for example, the following headlines from CNBC today:
*Investors Brace for Global Slowdown: El-Erian
*Are Stocks About to Repeat Summer Horror Show?
*Weak US Job Growth Threatens World Economy
When we see a brace of headlines like this, the contrarian starts opening his wallet and letting the moths out. He might not take out any money just yet to invest in the stock market, but he is sure thinkingly about it.
Next Thursday, Ben Bernanke will testify to a congressional committee on the state of the American economy. Analysts will pore over every word for some hint of further Fed stimulus. The Fed meets again on 19/20 June. I doubt that Bernanke will drop hints this week before debating courses of action at the next Fed meeting. Operation Twist is due to end in June, so they might consider continuing the activity – or some other stimulus measure (QE3). If that happens, the markets will probably respond favourably. The Fed might decide to do nothing. In which case we’ll see a reprise of the Valentine’s Day Massacre (pick your own disaster movie here).
Interestingly, the Fed meets just a couple of days after the Greek polls on 17 June. That might nudge them into action, or inaction. Meanwhile the Greek public opinion polls remain fluid, with the New Democracy Party (pro-bailout) just shading the Syriza Party (anti-bailout). It can go either way.
I think there are probably half-a-dozen people in the world who really understand the European problems, the ramifications of Greece exiting, and how the whole mess might be sorted out. And they’re not politicians and they’re not being quoted in the press. It’s too hard for me – so I’ll just keep looking at the charts. For now, I’m on the sidelines.
Last week, I had a win. But not the way I expected. I thought our market would be down then up. Instead it was up then down. But the three down days did give strong indications that buying was taking place as smart investors took advantage of the fear they see in the market. They might be a little early, judging by Friday night’s effort in America. But in the longer term they are rarely wrong. We’re not far off a low – but we might have to wait a couple of weeks while the Greeks and the Fed make up their minds on which way to jump.
Remember: do your own research. Make your own decisions. I hope that the information I show might help you just a little.
For daily updates – check http://redbackmarketreport.wordpress.com/
SLF – WEEKLY
I’ve continued the practice this week of replacing the SLF chart with the XPJ Chart (Property Sector). SLF is the tracking stock for XPJ. (SLF shows extremes in volatility due to low liquidity and market maker activity not evident in XPJ. (See below.) So don’t put in “at market” orders when buying and selling SLF. Use limit orders.)
The Property Sector had a positive week.. The chart is still looking OK. It remains above the 30-Week EMA and a major horizontal support level.
The three blue lines on the chart represent a Standard Deviation Channel. This Channel has dominated the sector since early August, 2011.
The middle line represents a regression line.
Whenever the Sector Chart gets a little too far away from the regression line, the chart has reacted – back down to a little below the regression line. The chart is now sitting right on the regression line – the middle of its uptrend changel. The red horizontal support line corresponds with about 7.65 on an SLF Chart. A break below that mark and SLF might be in serious trouble.
The bottom pane shows the Relative Strength of the Property Sector compared with the XJO. Property is taking on a strong defensive character.
SLF Dividend Yield: 5.1%. Ex-Dividend date was Friday, 30 March. Dividend declared was a healthy 22.0875 per unit. That’s the best quarterly dividend since March, 2010. Don’t expect distributions to continue at that rate. Dividends are distributed on a quarterly basis.
(SLF is the Exchange Traded Fund which tracks the performance of the Property Sector on the Australian stock market.)
WEEKLY STW
STW is the tracking stock for the ASX200.
The stock is close to the bottom of its recent trading range. About 37.60/42. The stock finished Friday at 38.63.
Like the XJO – the chart is registering oversold readings on momentum indicators.
Take buy/sell signals from the XJO chart.
Dividend Yield: 4.6%. Next ex-dividend date will be late June. Dividends are paid half-yearly.
(STW is the Exchange Traded Fund which tracks the performance of the ASX200.)
(20min delay)