Risk: * 50-Leaders -1.94%, * Small Ords -2.43%. * Bearish
Gold Miners: -5.24% Property Trusts: -3.38% A poor result to end the year. Gold Miners were smacked down again - over 13% for the month. They’re due for a rebound - but it will probably be a counter trend rally.
Interesting that the main themes for the year were repeated in the last week.
Best: Telecoms and Utilities. Worst: Materials. Risk: Bearish.
Don't fight the trend.
MONTHLY CHART - XJO
Dual oblique support continues to hold. Major horizontal support is at 3947.
A buy alert has been signalled by the CCI.14 crossing above -100. A previous buy alert by the Stochastic crossing above its signal line has been cancelled.
MACD Histogram continues to rise but still needs to cross above the zero line.
The chart is currently at 4056.6. The monthly 10EMA is at 4325.9.
The long upper tail on the December candle shows selling pressure.
The chart has been in a volatile sidways movement for almost 5-Months.
Long term investors should remain cautious and out of this market.
The long term trend remains down - but may be bottoming.
WEEKLY CHART - XJO
n the medium term, the chart continues within a symmetrical triangle pattern. This pattern can break either way.
Downward pressure from April, 2011.
All Indicators are turned down and generally in no-man’s land.
The chart needs a solid break above the 30-Week Moving Average and the restraining line of the symmetrical triangle to adopt a bullish profile. That’s currently about 200 points away.
The lower supporting line of the symmetrical triangle is much closer.
Patience is needed till direction becomes clear. After four weeks down, a bounce can be expected – but don’t bet on it. Even then it will probably be a counter-trend rally. We need a clean break out of the symmetrical triangle to get an idea of future direction.
The Medium Term Trend is sideways.
DAILY CHART – XJO
For about two weeks, the Index has been trapped in a relatively narrow 100-point range: 4040-4140. A break from that range should see direction clear for the next week or so.
Indicators have flattened out. Stochastic is once again oversold. Short term counter-trend traders will be betting on the upside.
Long term investors should still, in my opinion, remain cautious until the direction is clear.
Short-term trend – Down
GOLD IN OZ DOLLARS – DAILY
Oz Gold, on a one-year basis, has a correlation to the XJO of about -0.9. That’s a very good inverse correlation. About as good as it gets.
However, over the past two months, the correlation has been a warm +0.4.
So you can see my concern that the historical inverse relationship between the two might be breaking down.
Once again this week, Gold fell while the XJO fell – negating any use that Oz Gold has as a hedge against falls in the stock market.
What does it mean? Probably that the market is pricing in deflation. It’s expecting deflation rather than inflation. That’s a big worry – it means big falls coming both in Oz Gold and the stock market.
Currently Oz Gold is seriously oversold and starting to show some positive divergences. So we can expect some upside in the near future.
What does that mean for the stock market? Historically it would mean falls in our stock market. But now – I don’t know – watch the stock market – and don’t expect to use Oz Gold as a hedge.
AUD/USD – WEEKLY
Another conundrum. The AUD has a reasonable correlation with the stock market. This is understandable as the stock market is dependent on liquidity flows for its strength or weakness and vice versa – its a symbiotic relationship. Strong Oz Dollar means plenty of money flowing into the country – means money going into the stock market.
The last two weeks has seen upward movement in the currency but downward movement in the stock market. The stock market has been down four weeks in a row. The AUD has been down two then up two.
The currency is now at an important resistance level going back to 2010. That’s around the 1.02 level. A break higher would be bullish for the currency and bullish for stocks. Similarly a fall here would be bearish for the currency and stocks. That is – if the usual relationships work.
This also helps explain some of the recent weakness in the Oz Gold price. Strong AUD should equal weak Oz Gold price. And that’s what has been happening.
Now either AUD and OZ Gold price are “wrong” and the stock market is “right” – or the other way around. Or – maybe expectations of deflation are turning matters topsy turvey.
DOW 30 MONTHLY
Dow Monthly is above the 10-Month Moving Average.
Last two monthly candles have long lower tails indicating buying pressure.
Stochastic has crossed to the up side of its signal line.
Other momentum indicators are headed up.
This looks like its headed to the 12800 level. If that resistance level breaks then the 2007 highs around 14200 would be probable. 12800 could be a tough nut to crack.
This chart has not changed materially from last week.
DOW 30 – DAILY
The Santa Rally didn’t kick on between Xmas and New Year. Unusual. But seasonal haven't worked too well lately.
The chart appears to be topping, with indicators suggest the path of least resistance is down. The “Evening Star” doji of four days ago is usually bearish. A cross below the 10-Day EMA (red dotted line) would confirm.
Given the way the chart bounced strongly off the 150-Day MA, this suggests a “buy-the-dips” scenario. So any pull-back might be a buying opportunity.
The American Dow 30 and the Australian ASX200 appear to have dislocated. So any comments about the Dow 30 shouldn’t necessarily apply to the Australian Index. Usually the correlation is good – but it isn’t at the current time. See next chart.
DOW 30 – XJO SPREAD
This chart shows the Dow 30 in the top pane and, in the bottom pane, the spread between the Dow 30 and XJO; e.g., if the Dow 30 is at 11500 and XJO is at 4500, the spread is 7000.
On the two up thrusts from early October, the Dow 30 has pulled away strongly from the XJO. The Dow 30 is more volatile than the XJO – that explains the peaks and valleys – but the trend for the Dow 30 to dislocate from the XJO is clear in this chart.
COPPER DAILY
This is a daily chart of Copper. Copper is a proxy for world economic growth, particularly Chinese.
The chart has been in a coiling movement since late August, 2011, resulting in the large symmetrical triangle formation. It’s now getting to the “pointy bit”. A break one way or the other is imminent.
Momentum indicators have turned up and have room to move higher. But we need to see which way the chart breaks.
Watch this space.
OZ MATERIALS WEEKLY
The Materials Sector has been in a long-term down trend since April, 2011. It’s difficult to imagine a bullish Australian market without participation of the Materials sector – the most important sector in our export oriented economy.
The down turn was forewarned on the Mansfield Relative Strength Indicator (lower pane) with a negative divergence from the Index chart. No positive divergence forewarning of an up turn has yet appeared on this Indicator.
This chart shows how precarious the sector is from a technical point of view.
A break lower through nearby major supports would suggest the sector will visit the lows seen at the end of the GFC. That would suggest a price for BHP in the low $20 range.
That may not happen as the chart is currently oversold and some positive divergences are showing up – particularly on the MACD, but not on the MRSI. So that doesn’t guarantee a reversal upwards.
Until we see the MRSI improve the Materials Sector will remain a drag on the general market.
DAX (GERMAN) DAILY
The broad German Index (Dax) fell heavily in late July and early August. The fall then continued on into mid-September. (Read European debt crisis.)
Since then, the chart has formed a coiling formation which can break either way. Like Copper, the chart is close to the “pointy bit”. A resolution of the consolidation should occur soon.
Indicators have more room to move up so the chances of a break upwards are good – but by no means assured.
A solid break back above the 30-Week MA (blue dotted line) would be bullish.
PREDICTION – 2012
Freakonomics recently presented a podcast on "The Folly of Prediction". They noted that humans love to predict the future but are not very good at it.
Why, then, do they do it? The pay-off, if you get it right (unlikely). is guru status and bragging rights. The penalty for getting it wrong – not much. There’s nothing in it for somebody else to point out you were wrong – and the wrong predictions are quickly forgotten. So … people keep doing it for the (unlikely) pay-off.
Barron’s recently surveyed ten strategists from major broking houses for their predictions (U.S.). The average of the ten saw a rise of about 12% for the SP500. In 2011, the same set of strategists were all above where the SP500 finished. All were wrong. Not very good. I think they all get an F in Prediction 101. In 2010, the mean of predictions of the same set of strategists was just about spot on. So -as a group they got an A. Still – not very comforting when you look at 2011.
Well – here’s my coward’s way of predicting 2012. First is a regression channel showing upper and lower limits based on 2010-2011 Data. Note – the channel still points down. The XJO should bounce around between the upper and lower limits of the regression channel.
Second is based on major support and resistance – upper limit around 5000 on the ASX200 (highs in 2010-2011), and the lower limit around 3100 for that index (2009 GFC low). If a break out of the regression channel occurs - we might see one or the other of those levels hit - depending on which way the break occurs.
I just might get it right somewhere in there. And then I can claim bragging rights. :)
What are the odds that the Index will end up somewhere outside even my wildest guess – probably good, given human’s inability to predict the future.
In the meantime – I’ll keep following trends and hope for the best. At the moment – the long term trend is still down.
SUMMARY & CONCLUSION
Stock market performance around the world for 2011 was at best flat and at worst abysmal. Greece took the wooden spoon, down a whopping -60%. Australia? About average by world standards – down about 15%. But better than some other commodity export oriented countries like Norway, Canada and Brazil, all down over -20% The American market was flat – one of the better performing markets in the world. Yep, that’s right, the stock market of the country owning the Best Treasurer in the World (us) – the envy of the developed world – fell about -15% while that debt-ridden, flea-bag, deficit addicted, anachronistic hang-over empire from WWII trounced just about everybody. Mr Swan, Please Explain.
Late in the year, some conundrums started to appear in the outlook for Australia. Oz Gold and the AUD/USD aren’t maintaining their usual relationships with the Australian stock market. Something’s “wrong”. Either these must come back into sync – or some change of a fundamental nature is occurring. Probably the outlook is for deflation – which will be negative for our stock market and POG in Oz Dollars. I hope I’m wrong about that scenario. It’s too early to tell.
The Materials Sector is at a precarious tipping point. If deflation is on the horizon – that will hit commodities – and send the Materials Sector down – probably to the low GFC levels – and our stock market will go with it. Watch for a break below major close-by support levels. A bounce here could see the Sector bounce back to early 2011 highs. I still think that’s the most likely result – but I’m seriously not discounting the bearish outlook.
The outlook for Copper (a major commodity) isn’t (yet) confirming the bearishness of the POG (Oz Dollars). So the deflation thesis may not hold up. But … Copper is in a large symmetrical triangle. If it breaks lower out of that triangle, our Materials Sector will surely go much lower. I’ll be carefully watching Copper and Materials.
The German DAX is also in a symmetrical triangle. Given its key role in the European economy, a break lower would also be bearish for world markets, including ours. Another key market to keep in focus.
Lessons I’ve learnt this year, 2011? Forget about seasonality and the Presidential Cycle. Stay focussed on THE CHARTS – trends, support and resistance, oversold and overbought. That’s the New Year’s Resolution. Keep me honest – and remind me at the end of January.
For a bit of fun – I included my prediction for 2012. Don’t take the slightest bit of notice of that bit of fluff.
Next week? Short-term, America is overbought, Germany is mid-range, Australia is oversold, Copper is mid-range, Oz Gold is oversold, AUD/USD is mid-range. Charts are currently a dog’s breakfast. The usual close correlations simply arent’ there. So – I haven’t a clue. Just looking at Australia – I have to say, we’ll probably move up in the next week from our oversold position – but, maybe, oversold will become more oversold.
Respect the trend. 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
The stock is now oversold according to the CCI and Stochastic. The MACD Histogram and CCI are showing positive divergences from price. A rebound is likely.
Short term the stock needs to get back above the down trend line from early December. In the long term, the major hurdle before a bullish profile can be assumed is a move above the 150-Day MA.
Read in conjunction with the general market commentary above.
Dividend Yield: 4.6%. Ex-dividend date was 22/12/2011.
(STW is the Exchange Traded Fund which tracks the performance of the ASX200.)
(20min delay)