(This week's report is a little longer than the last couple of weeks with the addition of a Heiken-Ashi chart for XXF and regular candlestick chart for Copper. I've been trying to cut down the size of the weekly report but - it just keeps creeping back up in size. Nothing if not comprehensive? Well - rooly, trolly - I always leave a lot out which I think could be important. :) If you can't bear all the charts and guff - just skip down to the Summary and Conclusion section.)
AUSTRALIAN MARKET: INDICES ONE-WEEK PERFORMANCE
•XAO: +1.27%. Eight of 10 S&P Indices were up. •S&P Indices Performance – best to worst: 1.Energy: +3.25% 2.Consumer Staples: +3.22% 3.Health.: +2.21% 4.Financials: +1.91% 5.Consumer Disc.: +1.75% 6.Utilities: +1.64% 7.Info.Tech.: +1.48 8.Industrials: +0.62% 9.Telecoms: -0.63% 10.Materials: -0.77%
•Another strong week on the Ozzie market with most sectors performing well. Materials, again, disappointed. Despite the strength, the market remains relatively defensive with the Small Ordinaries doing very little while the blue chips (50-Leaders) outperformed.
MAJOR WORLD MARKETS INDICES ONE-WEEK PERFORMANCE
•This week, five of six major indices were positive, with Australia in the middle of the pack.•China’s performance appears very strong, but it is probably more of a reaction rally after dropping more than 7% the previous week. The Nikkei continues its upward movement under the influence of the strong economic stimulus package implemented by the Abe Government. They’re doing the Bernanke Quick Step (forget the Harlem Shuffle).
•Results for the six indices are: 1.XJO – Australia: +1.36% 2.SP500 – America: +0.17% 3.E100 – Europe: +0.2% 4.China88: +2.94% 5.NK225 – Japan: +1.94% 6.DJW – World: -0.31%
The weakness in the Global Dow is something of a conundrum. American, Chinese, European and Japanese companies make up a large proportion of the Index. They were all positive. Morgan Stanley’s Emerging Markets Index (IEMG) was down -0.04% for the week. No where near enough to offset the rises in the major world markets. Odd. It must be a quirk in the composition. But - Global Dow has a habit in recent times of leading other major indices. (See below.)
AUSTRALIAN MARKET: MONTHLY CHART – XJO
•The chart is currently at 5086.1. The index has been up eight of the last nine months. The only down month was only marginally negative. Back in 2006/2007, the index was up ten months in a row. In 2004/2005, the index was also up 10 months in a row. •February was up 4.62%. The average rise of positive months since this rally began is 2.65%. The best month was Jan. 2013, up 4.95. So, the past two months have been up almost 10%. The closing price this month was the highest since August, 2008. •The chart pattern was a right angled triangle. The measured move for such a pattern, if it completes, is around the 2007 high. In round figures 6900. •This now appears to be a cyclical bull market – we can expect the 2007 highs to be challenged. Next resistance level is 5950. Support at 4981. •Stochastic, RSI and CCI are overbought. They can remain so for months.
AUSTRALIAN MARKET: WEEKLY CHART – XJO
•The XJO was up this week (+1.36%). •Action the previous week was bearish. The long upper shadow on that week’s candle indicates selling pressure. The candle is a “hypodermic syringe” piercing the Upper Bollinger Band (20.2), then falling back. Such conditions are rarely seen – and usually at turning points. It needs a strong down week next week to confirm. This week didn’t confirm that selling pressure. The bull rally remains strong. •RSI.9 is at 86.3. That’s very overbought and marginally below the post-GFC reading of two weeks ago. Readings above 80 occurred frequently in the 2003/2007 bull market. So we shouldn’t presume that such a high reading is likely to produce a correction. In a bear market, such a presumption would be reasonable. In a bull market, it’s an indication of strength. •Stochastic and CCI are both overbought, but can remain so for weeks. MACD Histogram and Directional Movement Histogram have both dropped down. Those are possible early warning signs of a pull-back. Warning signs are just that, signs to watch – not a requirement to act.
AUSTRALIAN MARKET: DAILY CHART – XJO
•The XJO finished at 5086.1. First level of horizontal support is is around 4980, then 4570 (round numbers).
•Indicators: 1.MACD Histogram. Marginally above zero. Neutral. 2.MACD. Below zero. Negative. 3.RSI.9 is at 62.3. Negative divergence. 4.Stochastic. 79.3. Negative divergence. 5.CCI.14: +104. Marginally overbought. Neg. Div. 6.ADX. 49. Below its signal line. Negative.
•The chart is back to resistance. Possible negative divergences on the indicators suggest the next move will be down. •MACD below zero suggests short term traders will sell rallies.
This chart is betwixt and between. Technically a pull-back is likely, but we have to see a break of support at 4980 before being convinced that anything major is developing.
AUSTRALIAN MARKET: SECTOR PERFORMANCE – XSO Weekly
•The Small Ordinaries is a barometer of the health of the market. Rarely can a bull market continue without strength in the secondary market. Small Ordinaries have been underperforming the XJO for the past year. After such a lengthy time, one begins to question the wisdom of market aphorisms. A market can, however, continue upwards without a solid breadth for a long time, but, eventually it will crumble. •This week I’ve shown a Heiken-Ashi chart of the XSO weekly instead of the usual candle-stick chart. They are similar in appearance but the H-A is, more or less, a smoothed version of a Candle-stick chart. As such, it is easier to see trends, and trend changes. Trend changes are often heralded by a wide-range spinning top. It’s not a very reliable signal – but a warning. It needs to get a following bearish candle, a dark body with a lower tail, to confirm. This week’s candle is a narrow range doji – so the reversal isn’t confirmed. This shows consolidation. It could switch to the upside. • Most indicators have given sell signals. Directional Movement has dropped suddenly to almost zero. •This appears to be on the cusp of a trend change. Let’s see what next week brings.
AUSTRALIAN MARKET: SECTOR PERFORMANCE – XXJ Weekly
•The Australian market in recent months have been led upwards by yield stocks and defensives. The best has been the Financials (ex-Property). Recently its daily RSI.9 was above 90. That’s the highest RSI reading of any of the leading sectors. The outperformance of the XXJ over the XJO for the past year can be seen in the lowest pant. •This market will end when the leader falters. There’s no sign of that so far in the Heiken-Ashi chart which continues to show bullish candles for the thirteenth week in a row. (Bullish candles have light bodies with a long upper wick and no lower wick.) •The only sign that this could be faltering is in the Directional Movement Histogram (second bottom pane) which dropped this week for the first time since this rally started in November, 2012. That’s just a warning sign – nothing more. •At this stage, the market leader is still strong.
CURRENCY: AUD/JPY WEEKLY
•This Heiken-Ashi chart provides one of the reasons for the remarkable recent rise of the Australian market. The long bull run is shown by the yellow candles going back to October, 2012 Money has been pouring out of Japan and into other major currencies – Australia is just one beneficiary. This cash movement has been caused by extreme stimulatory activity by the Japanese government (the Abe Effect). The financial press has been awash with news of American investors making a billion dollars on yen depreciation. CNBC is one that reported George Soros as making $1b U.S. betting on yen depreciation. •Money flowing out of Japan into Australia improves liquidity – necessary for a rise in the stock market. The correlation between the AUD/Yen and the Ozzie stock market is good. •This week’s H-A candle is a wide-range spinning top, often a sign of a trend reversal. (These seem to work most reliably in foreign currency charts.) •The chart is at the resistance of a rising oblique line. This line stretches back to October, 2009. Trend lines of such duration are very powerful and take enormous pressure to break. The line of least resistance is downwards. •The chart is clearly stalling at this stage. It may continue to consolidate at this level, but it could just as easily fall. A fall would be negative for the Ozzie stock market. If next week is a large, dark candle with a lower wick, that will signal the end of the bull run in the Yen.
INTERNATIONAL MARKETS: SP500 – WEEKLY
•The SP500 finished at 1518.2. Marginally up on the week, +0.17%. The index has been close but failed to finish above 1520 for the past four weeks. This week’s candle is another doji – but with a longer tail, showing some buying pressure. •Indicators: 1.MACD Histogram. Crossing below zero. Flashing Sell. 2.MACD. Above zero. Positive. 3.RSI.9 is at 71.8. Overbought. Needs to fall below 70 to flash a sell signal. 4.Stochastic. 93.2. Overbought. Below its signal line. Flashing Sell 5.CCI.14: +74.4. Falling below +100, Flashing Sell. 6.CMF. The money flow index is showing a major divergence from the index chart. These major divergences are often a pre-condition for a market fall. •Everything is set up for a fall in the market. We haven’t seen a confluence of conditions like this since May, 2011 which led to a major fall in the market. •But, the up trend remains intact. Let’s not pre-empt, we’ll wait for the trend to break. This week’s “buying pressure” candle suggests the bulls won’t give in without a titanic struggle. But watch out for icebergs. :)
INTERNATIONAL MARKETS: SP500 – DAILY
•The SP500 finished at 1518.2 failed tests of resistance on Monday and Thursday. Support/Resistance: 1466.12/1526.72.
•The Index was down +0.17% on the week. 1.MACD Histogram. Above zero. Positive. 2.MACD. Below zero. Negative. 3.RSI.9 is at 56. Positive. 4.Stochastic. 68.1. Above its signal line. Positive. 5.CCI.14: -3.9. Hovering around the zero line. Neutral.
•The Index chart is caught between a rock and a hard place. Above is resistance of 1527. Below is support of the 40-Day TMA and the oblique up trend line from November. •Recently, volume on down days has been higher than on up days. (Not shown on the chart). This looks like distribution by the “big boys” on the down days, resting on the up days, letting the late bulls have their day in the sun. •Watch for a break one way or the other. Up – above resistance. Down – below 40-Day TMA.
INTERNATIONAL MARKETS: EUROPEAN TOP 100 – WEEKLY
•The E100 finished at 2380.3, up +0.2% for the week . Support/Resistance: 2300.85/2398.62. (Roughly 2300/2400) •Again this week the E100 had a long lower tail indicating buying pressure. The chart has been consolidating close to the 2400 area for the past nine weeks but hasn’t been able to break through. The last consolidation took 14 weeks, so this could go on for some time. •Indicators: –MACD Histogram. Below zero. Negative. –MACD. Above zero. But dropping. –RSI.9 is at 61.4. Positive. –Stochastic. 80.5. Overbought. Falling below its signal line. Negative. –CCI.14: +43.3. Falling below +100 with a negative divergence. Negative. •The odds are now beginning to favour the bears with momentum falling, but a very strong support level lies at 2300, only about -3% away. That may hold any pull back. •The medium term up trend remains intact.
INTERNATIONAL MARKETS: NIKKEI 225 – WEEKLY
•Nikkei 225 is the broad market benchmark for the Japanese stock market. •The Index finished at 11606.4. Up +1.94% for the week. That’s sixteen weeks in a row the N225 has been up. The Random Walk theory suggests that the stock market is similar to a casino. I’ve seen nineteen reds in a row at the casino. I’m just wondering … hmmmmm. •The AUD/JPY H-A chart earlier suggests that this run may be coming to an end. We’ll see. •So far the index has resisted efforts to take it lower. This week, the long lower tail indicates more buying pressure. •I’ve shown an atypical Bollinger Band set-up this week. The standard settings are a 20-Day SMA and 2 Standard Deviations. This setting uses a 10-Day SMA and 1 Standard Deviation. Whenever the index chart has run up above the Upper Bollinger Band and then broken back below it, more falls have ensued. No break down has occurred yet on this chart. •The Chinese chart (next) is instructive.
INTERNATIONAL MARKETS: CHINA88 – WEEKLY
•This week the China88 index was up 2.94% this week after it fell heavily the previous trading week. This week looks like a reaction bounce after the previous trading week’s big fall. •(The Chinese markets were closed the week before this one for Lunar New Year, hence the “dash” on the chart for that week. No trading.) •Ignoring that dash, the chart has completed a classic three candle reversal pattern, taking the index back below a major support resistance level. •Indices have all flashed “sell” signals. The index chart has broken back below the upper Bollinger Band (10, 1). •Nothing is certain in stock markets. Technical Analysis, of all kinds, is a weak, not a strong science. But, the current confluence of signals looks powerful enough to say that the Chinese market will see further downside. •Given that China is Australia’s (and Japan’s) biggest trading partner, one wonders how long our market could resist the downdraft in China.
INTERNATIONAL MARKETS: GLOBAL DOW – WEEKLY
•The Global Dow is an index of 150 blue chip stocks from around the world. •In most recent years major turning points in the Global Dow have coincided with turning points in the ASX200. •That changed in 2012 when turning points at the top of trends occurred earlier in the Global Dow than in the ASX200. •The up trend in the Weekly Global Dow has now turned down – down for the past three weeks. Indicators have rolled over and suggest that more downside is likely. There’s been a break down on the Bollinger Bands (10.1). When those break downs have coincided with breaks by the MACD Histogram below zero, further falls have often occurred. •Given recent history of correlations between GDow and XJO, this may be a leading indicator of further falls for the XJO.
COMMODITIES – COPPER WEEKLY
•Copper is often used as a proxy for the health of the world economy. It’s a ubiquitous material with many industrial uses. I’ve often included charts for Copper and Oil in the Weekly Report. In recent times, I’ve avoided putting them in an already crowded report because not much was happening – they were in long sideways trends. •That changed this week with Copper breaking a long term oblique up trend line from June, 2012. •The previous week, Copper gave a sell signal with breaks in the BB (10.1) and MACD Histogram. That was confirmed this week with a break of oblique support. •June 2012 was the end of the bear correction in stocks and the beginning of the bull rally. The break below oblique support in copper may portend more falls in both the commodity and stocks. Major support lies at the June, 2012 low. The November, 2012 low is a short distance away. That could also provide support, but the odds favour the June, 2012 low.
SUMMARY & CONCLUSION
First of all, a run down of the major world indices that I watch. Five out of six indices were up. The figures: XJO, +1.36%; SP500, +0.17%; Europe Top 100, +0.2%; China,+2.94 %; Nikkei, +1.9$%, Global Dow, -0.31%. This week, China rose relatively strongly after a much bigger fall the previous week. This week looks like a reaction bounce. Japan has now been up 16 Weeks in a row. Amazing. But anything can happen in Stock Market Land. The up trend in the Global Dow has now turned down. That’s also happened in the Chinese index. Europe and America are in consolidations. These can go either way. Turning points at the top of trends in the Australian market are usually well correlated with other major world markets. With weakness appearing in most world markets, it seems only a matter of time before we succumb too.
Copper has broken below the long term support line of a large symmetrical triangle. Such breaks usually favour a return to the base of the triangle. Further falls are likely.
In large measure, the recent rise in the Australian market has been due to events in Japan with the AUD/JPY on a tear upwards. Much of that money flow feeds directly into the Australian stock markets with global investors borrowing heavily in yen and seeking high yield in places like Australia. This strategy works well while the Yen is falling (AUD rises) but turns ugly once the currency pair trends the other way. The H-A chart of the Yen shows a possible reversal candle this week. It needs confirmation with a bearish follow-up candle.
While the trend is up, you have to stay with it, no matter how ludicrous it feels. The leading sector, Financials ex-property, has shown no sign yet of breaking downwards. While it continues its ascent, the bull rally remains intact.
Market Structure is poor. It’s rare that a market can continue a bull rally without strength in the secondaries. They usually lead. The XSO (Small Ordinaries) has underperformed the XJO for about a year. Such anomalies can persist for a long time, but eventually, without a solid base in the secondaries, the structure tumbles like an inverted pyramid given a slight nudge. We just haven’t had the nudge, yet.
As Warren Buffett says, “Only when the tide goes out do you discover who’s been swimming naked.”
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/
ETF: SLF – WEEKLY
•This week I’ve continued to show the chart for XPJ – the Property Sector. I’ve mentioned before that SLF has low liquidity which means that prices on offer are often those offered by the market maker. They offer prices with a very wide spread. If you put in an “at market” order you’ll often end up with a price which is out of kilter with the underlying instrument. This also results in distortions in the tracking stock, SLF. •This has been an extraordinary bull market in Property. Since December, 2011, both the CCI and RSI have remained above their mid-lines. Any dip has been bought. It didn’t even really blink in the May, 2012 general market correction. It dipped for a couple of weeks, but never looked in danger of a trend break. •Nor has it ever looked likely to go exponentially up. The trend has been just steadily up. An exponential move could bring the sector down. That would be seen with a sharp move by the chart above the Standard Error Channel. •Until the Index chart decisively breaks to the down side property investors are laughing. •The Property Sector is an interest rate sensitive sector. It’s borrowing costs go down and investors seeking income will switch out of other instruments (e.g., bonds and bank accounts) and into Property Trusts seeking higher dividends. While the RBA is in rate cut mode, it’s difficult to see how the Property Sector can suffer significant falls. •According to Comsec, SLF Dividend Yield is 5%. That remains good value. Dividends are paid quarterly. Next dividend date is the end of March, 2013. •(SLF is the Exchange Traded Fund which tracks the performance of the Property Sector on the Australian stock market.)
ETF: WEEKLY STW
•STW is the tracking stock for the ASX200. •This week the ETF rose +1.55%. The up trend remains intact. The chart has now risen above the Standard Error Channel. Such extremes usually result in reversion to the mean – and often overshoot to test the lower boundary of the SEC. •Take signals from the XJO chartDividend Yield: 3.6%. Dividends are paid half-yearly. Next ex-dividend date will be at the end of June. •(STW is the Exchange Traded Fund which tracks the performance of the ASX200.)
OZ GOLD WEEKLY
•In the wider scheme of things Oz Gold (Gold priced in Australian dollars) has a long term upward bias and tends to trend inversely to the broad Australian market (XJO). This is particularly evident in times of extreme stock market stress. •The chart has been in a long term sideways trading range after a sharp rise counter trend to the big fall in the Australian stock market in mid-2011. •The chart is now at the bottom of the range. Around 1520 is an exceptionally important support level. It has provided support since mid-2011. Before that the level provided resistance to the huge rise in 2008 into early 2009 and then later in mid-2010. If this breaks to the down side, it will give a major technical sell signal. Which would be bullish for the Australian stock market. •Early this week, Oz Gold rose strongly bouncing off support, but gave back much of that later in the week. •RSI is at 36.2 up from 30.9 the previous week. It remains oversold. In the past four years, whenever the RSI gets down near 30, the chart bounces to the upside. The odds favour a move up from here for Gold and down for Australian stocks. •While the Australian market continues its bull run, we can’t expect a bullish profile in Oz Gold. If the Australian stock market does fall, then we can expect a bounce in the Oz Gold price. It could be sudden and sharp – difficult to catch. •For a pure buy’n’hold investor, some exposure to OzGold 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.)
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