50-Leaders +1.34%, Small Ords +0.69%. Risk Appetite - Low
Gold Miners: +4.81%
Property Trusts: +0.88%
A positive week with cracks appearing. Appetite for risk was Low. Sector strength/weakness was evenly balanced. Weakness in the Consumer Discretionary sector is a signal that all may not be well in the domestic economy. Still too early to tell.
MONTHLY CHART - XJO
Soooo close, but no cigar. Remember - this chart only gives signals at the end of the month.
MACD Histogram has crossed to the positive side. CCI rising above -100. Stochastic within a smidgin of crossing above its signal line. RSI showing higher highs and higher lows.
The chart is currently at 4288.4. The monthly 10EMA is at 4319. This week the index got up to 4315.6. So close.
The chart has been in a volatile sideways movement for about 6-Months.
Long term investors should remain cautious and out of this market.
WEEKLY CHART - XJO
Plenty of buy alerts on this chart. Momentum indicators are all bullish and the chart has broken out of the symmetrical triangle.
It is also above the 30-Week EMA.
It hasn’t managed to set a new weekly higher high. It needs to get above the high set in early December to do that. No Tick.
The chart needs a solid break above the 30-Week Moving Average and set a new weekly high to adopt a bullish profile. It’s very very close. Patience is needed till direction becomes clear.
Cautionary note: the chart is up four weeks in a row. Five weeks up is rare. Six weeks up is even rarer. Last time we saw five weeks up was in mid-2010. That was a bullish move - but was followed by three weeks down before resuming its bullish rally. So - don’t expect too much more upside. Wait for a pull back and bounce before entering.
DAILY CHART - XJO
Stochastic and CCI are overbought.
RSI nudging the overbought level of 70.
Three of the last six days have been reversal days. There’s a lot of nervousness in this market. It wouldn’t take much for bears to turn the tables on the bulls.
The 15-Day EMA is still below the 150-Day EMA. That’s an important signal for me. To be valid the cross-over must occur while the market is rising not falling.
The resistance zone between 4335-4350 needs to be overcome.
Medium to long term investors should, in my opinion, remain cautious until major overhead resistance is broken.
AUD/JPY - DAILY
The AUD/JPY is watched carefully by traders. It provides a clue as to cash flows into and out of Australia (and thus into the stock market). The currency pair is used heavily by speculators in Japan capitalising on interest rate differentials between Japan and Australia. A rising JPY accelerates the profits made.
The daily chart had a great run up of seven days in a row. It stumbled on Thursday at a major resistance level and retreated on Friday
Momentum indicators were giving extreme overbought readings. RSI almost hit ninety. They have all now turned down. Expect further falls.
In the short term this is negative for the Australian market.
Note: This chart includes data from the Friday overnight session - so last night’s action gives a warning flag for Australian stock market action on Monday. Not necessarily a one-to-one correlation - but a warning flag.
DOW 30 MONTHLY
Dow Monthly is above the 10-Month Moving Average. That’s a positive. The medium term trend from October remains intact.
This week the chart went within a smidgin of the early 2011 high around 12800. It then fell back. It is marginally above the down trend line from 2007.
Indicators are all pointing up.
The chart needs to crack 12800 (horizontal resistance) to confirm that the very long term bull market from early 2009 is intact.
If it does crack 12800, then the 2007 high looks a possibility.
Remember - readings for this chart are only confirmed at the end of the month.
DOW 30 - DAILY
Crucial time for bears.
On Thursday, the chart poked its head above 12810 then retreated. On Friday it pulled back more on increasing volume. The three day candle pattern looks bearish.
All momentum indicators have turned down, some from extreme overbought readings. These have now fallen from “do not sell” zones.
Confirmation of a bearish pull back is needed by a cross below the uptrend line from late November and a cross by the Stochastic below 80.
The medium and short term trends are up.
Respect the trend.
TVIX - DAILY
This is a chart of the TVIX - an ETF based on 2xtimes the VIX Index (Fear Index). The VIX itself cannot be traded as it is a derivative index of Puts and Calls. So ETFs have been created for traders.
This chart tends to have a strong negative correlation to the stock market.
Bullish TVIX traders must be salivating looking at this chart. Long down trend, RSI at extreme low reading (below 20) and a rush by the “dumb money” shorters to get into this trade. (See the extreme volume readings.)
What’s the opposite of “Cloud Cuckoo Land”. It must be “Slough of Despond”.
This chart has strong bearish connotations for the stock market. Too many traders are on the “wrong” side of this trade. I find this chart really, really scary.
COMMODITIES DAILY
This is a DBC chart - DBC is an ETF that tracks the commodities index in America. This is a secondary indicator useful for confirming events in the Australian market.
It has a remarkable similarity to the Australian XJO.
Hello. Not surprising - Australia is a “commodities economy”. Well - not entirely - but the strength of the Australian economy is based on our commodities production - not just mining - but agriculture and pastoral industries. The correlation between the Commodities Index and the XJO over the past year is 0.72 - that’s strong. This provides a strong reason why the Australian stock market is not in sync with major overseas markets - which are not as dependent on commodities for the strength of their economies.
The chart is at a significant resistance level (the 150-Day MA) and RSI is at an overbought level of 70. Other indicators (Stochastic and CCI) are also overbought.
This looks threatening. But watch the stock market.
OZ MATERIALS WEEKLY
The Materials Sector was in a long-term down trend from April, 2011. The down trend line from April, 2011 was broken to the upside this week.
Indicators have turned up and have plenty of room to move up further. The positive divergences I noted two weeks ago seem now to be paying off. RSI has broken a long term down trend from late 2010. That’s a big tick.
The bottom pane of the chart is a Relative Strength Indicator of Materials:ConsumerStaples. Consumer Staples is a defensive sector and Materials is a cyclical sector. The chart has now turned up and broken above a down trend line from early 2011.
All of the above is positive. The Index needs to break above the 30-Week EMA (red dotted line) to confirm.
Long term trend: may have turned up. Needs to break above 30WEMA and October highs to confirm.. Medium term trend: up. Short term trend up.
Risk appetite for the sector has improved.
The current bullish profile needs to be confirmed by the Consumer Discretionary Index. See next chart.
CONSUMER DISCRETIONARY - WEEKLY
Materials Sector represents the strength of the export oriented cyclical economy in Australia. Consumer Discretionary Sector represents the strength of the domestic oriented cyclical economy in Australia. Both need to be strong for the economy and the stock market to be positive.
Consumer Discretionary has been in a long term down trend since April 2010. After recent strength, XDJ performed poorly this week and failed to confirm the strength in the Materials Sector
The Mansfield Relative Strength chart (bottom pane) of Cons.Dis/Cons.Staples stalled this week but still remains in an upward trajectory.
Cons.Disc still has to prove itself by moving above the down trend line from early 2011 and above the 30WEMA. Then it needs to cross above the October highs. In the short term, that’s a big ask.
Long term trend: down. Medium term trend: sideways. Short term trend: down.
Risk appetite for the sector has improved.
DAX (GERMAN) DAILY
The DAX has continued to perform well this week and is above horizontal resistance set by the high in late October, 2011.
The chart is now overbought on the indicators. This chart is in Cloud Cuckoo Land with an RSI this week hitting 80. A rare event
Negative divergences MACD Histogram and CCI suggest falls ahead.
The chart has been hugging the lower tyne of the Andrews Pitchfork - despite the fact that the index is in an up trend, this is a sign of weakness.
If the up trend does break to the down side, expect a test of major support at 6168. Chart is currently at 6512.
UK - DAILY
The UK is a bug in search of a windscreen.
* At resistance. * In a bearish rising wedge. * MACD Histogram showing a negative divergence. * RSI, Stochastic and CCI - all have given sell alerts.
All that’s needed is for the index to break below the support line of the rising wedge - and - splat.
SUMMARY & CONCLUSION
Three major international indices (Dow 30, German DAX, London FTSE) are all at extreme overbought levels. London is a bug in search of a windscreen. These indices have now all come back into sync and only need a nudge to start falling. TVIX (2xVIX ETF) is at an extremely oversold level (RSI below 20) with extremely high volume. With everybody on one side of the boat - it’s sure to topple over. (TVIX trends inversely to the Dow 30.)
Secondary Economic Charts:
Commodities - Medium term sideways trend. (Correlates well with the broad Australian market). AUD/JPY - Another extremely overbought chart.
The Materials Sector - this week XMJ broke the long term down trend line to the upside. Needs to break nearby resistance to confirm. Short term - overbought with RSI.9 at 72.2
Consumer Discretionary performed poorly this week. Long term trend - down; Medium term trend - sideways; short term trend - down.
Strength in the Australian economy and its stock market typically depends on two major cyclical sectors; Materials - the export market, Consumer Discretionary - the domestic market. So far, Materials looks strong (but overbought short term), while Consumer Discretionary is not confirming that strength. (No wonder the Reserve Bank talks about a two-speed economy.)
Next week? The themes this week have been consistent - Dow, DAX, FTSE, XMJ, AUD/JPY, in the short term, these are too stretched to the upside. And TVIX too stretched to the downside. Expect a pull back.
For two weeks I’ve been preaching caution. And markets have continued to creep up. In the end, the only thing that matters is price action. At this stage the trends remain up. Respect the trend. If they break, however, this could get a wee bit nasty.
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/
DAILY STW
Since late October the 150-Day MA (blue dotted line) has proven to be strong resistance. Until that can be broken convincingly to the upside, we must presume that the current market action since August, 2011 is sideways consolidation.
The Stochastic and CCI Indicators are reading overbought. RSI is close to the overbought line of 70. More than likely, a pull back will occur this week.
Read in conjunction with the general market commentary above.
Dividend Yield: 4.4%. 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.)
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