•Risk: –50-Leaders +2.84%, –Small Ords +2.49%. –Risk Appetite – Still cautious. (See XSO chart later in the report.)
• Gold Miners: +3.22% • Property Trusts: +2.33%
•You didn’t have to be a genius to make money in the market this week. Despite the strong week, market structure is still indicating caution on the part of many investors, e.g., Materials were the weakest sector and Consumer Staples were stronger than Consumer Discretionary.
AUSTRALIAN MARKET: MONTHLY CHART – XJO
Third week of the new month, so judgement is withheld. •The chart is currently at 4199.1. The monthly 10EMA is at 4240.6. Horizontal support at 3864. •MACD Histogram, RSI, and CCI have kicked up. Monthly Stochastic is on a sell signal. Caution. •The technical picture is clear. Looking at the MACD Histogram – it’s flat. The market is in a long term sideways consolidation. Until the symmetrical triangle is broken one way or the other it’s best to remain cautious. •Buy/sell signals are taken only at the end of each month. Action during the month is disregarded. Long term investors should be cautious, out of the market, or with reduced holdings, or hedged.
AUSTRALIAN MARKET: WEEKLY CHART – XJO
A strong week up nearly 3%. •MACD Histogram and Stochastic remain positive. RSI needs to get above 50. •This week’s candle nudged marginally above the 30-Week EMA. The Index finished at 4199.1 while the 20-WEMA was at 4193.5. Let’s say the Index is at resistance of the 30-WEMA. Caution. •This chart remains ambiguous. •A break below the recent consolidation zone at 4025 would be negative. A break below the horizontal (red) support line at 3864 would be bearish suggesting a test of the early 2009 lows.
AUSTRALIAN MARKET: DAILY CHART – XJO
On Thursday, the XJO had a big up day – it looked like irrational exuberance (at least short term). •Since early June, the chart has been in a ragged medium term up trend. At this stage it remains intact. •The 10-Day EMA and 20-Day EMA (blue and red dotted lines) have now come together. A break by Monday’s candle back above those is needed. •Momentum Indicators (circled) are overbought. • We can expect some pull-back here. How much? At least to the 20-Day EMA – more probably to the up trend line shown from late June. A break below that and things could get very ugly. •We’re soon coming into a negative period historically (August/September) for the market. Any pull back could be the start of something bigger.
CURRENCY: AUD/JPY – WEEKLY
The chart remains in a medium term up trend. Although the currency was up +0.6% on the week, in the broad scheme of things, nothing material has changed. •Weekly Momentum Indicators continue to be positive. •The chart fluttering around the 30-WEMA and just below a significant horizontal resistance level. •For 2 ½ years, the currency has been in a large sideways trading range seen on this chart marked by the solid blue and red horizontal lines. In the long term, the odds favour a push back to the top of the trading range. •The dashed horizontal support/resistance line near the middle of the chart marks an area where the currency might “shuffle” or take a short term dive. Direction will be determined soon – either by a big up week or a big down week. At the moment the index is indecisive. •A break back above the dashed resistance line would suggest a tilt at the top blue resistance line. •Watch
MARKET SENTIMENT GUIDE: XSO – WEEKLY
•Small caps often lead the market both up and down and their relative action against the 50 Leaders provides a clue to market sentiment – bullish or bearish. •You don’t have to be a genius to conclude that this chart is bearish. The Index is well below the 30-WEMA while the XJO has nudged marginally above. The chart may, however, be making a base with the 2067 level as support. A break above 2164 would be positive. The Index finished the week at 2121.5 •Not marked on the chart, but clearly obvious is the huge Head/n/Shoulders formation going back to 2009. This has reached extreme danger levels. •Relative Strength Chart XSO/XFL (lowest pane) shows no sign of turning up. This provides a good guide to the RiskOnRiskOff (RORO) sentiment of traders. At this stage it remains clearly Risk Off. The safety of blue chips (Fifty Leaders – XFL) is being preferred to the more risky Small Caps (Small Ords – XSO). •MACD Histogram and CCI are both showing positive divergences – so there’s some hope. •Watch.
MARKET SENTIMENT GUIDE: XMJ – WEEKLY
The Materials Sector chart is showing a similar technical picture to the XSO chart. •All the comments about the XSO chart are also pertinent here. Unless the chart can recover support very quickly, it looks like it’s headed for the 8000 area (currently above 9000). •The Relative Strength Chart of the Materials/Cons.Staples is down to levels last seen at the end of the GFC. The XMJ/XSJ Relative Strength is a good guide to the RiskOnRiskOff sentiment of market participants. It is currently firmly in Risk Off mode. •Nine weeks ago, the XMJ completed a huge Head/n/Shoulders pattern. That continues to play out to the downside. This suggests the Materials Sector will see the lows set at the end of the GFC. That’s bearish for the general market in the future.
INTERNATIONAL MARKETS: DOW 30 – Daily
Dow 30 was up a little on the week +0.36% and closed at 12822.6. Friday completed a three day reversal pattern at resistance. Expect more downside. •Friday’s down candle broke the 5-Day EMA to the downside, so the short term trend is down. •The Index has been oscillating around the 20-Day EMA for several weeks – with an upward bias. It would be nice to see it bounce off the 20-Day for a change – but the probabilities now lie to the bottom of the shallow uptrend channel marked on the chart. •Friday was OpEx Day – usually a narrow range, high volume day. We got the high volume but not the narrow range. Unusual – and bearish in the short term.
INTERNATIONAL MARKETS: DAX (GERMAN) WEEKLY
The German market was up on the week, +1.1% but experienced heavy selling on Friday. That accounts for the long upper tail on the candle – selling pressure. •Momentum Indicators are all acting positively and have further room to move up. •The medium term trend from early June is up. The short term trend is down. •The selling came in as the chart neared horizontal resistance (blue line). We now have to see which way the chart goes from here to determine direction, but Friday’s action was not positive. •On Balance Volume is showing positive divergence – so we might see a pause then a push up.
INTERNATIONAL MARKETS: DOW JONES CHINA 88 – WEEKLY
DJ China 88 Index consists of the largest and most liquid A-Stocks traded on the Shenzen and Shanghai stock exchanges. •The Index broke below support this week. The break is not confirmed by the On Balance Volume. •RSI, Stochastic and CCI are oversold. They can remain oversold for weeks at a time. Until they kick up it’s wise to remain cautious. •We can now expect a test of the late-Dec early-Jan lows. That may not happen, however, given the state of the indicators and the slightly bullish nature of OBV. But – the medium term trend is down. •Watch.
COMMODITIES GOLD IN AUD – WEEKLY
In the wider scheme of things Oz Gold (Gold priced in Australian dollars)has a long term upward bias and trends inversely to the broad Australian market (XJO). This is particularly evident in times of extreme stock market stress. •Since the beginning of 2012, Oz Gold has been in a sideways consolidation. •The chart had a poor week down -1.73%. It is now sitting on a major horizontal support line (solid blue line). •The probabilities favour a move up maintaining the very long term up trend. A move back to the top of the sideways channel is probable. MACD is showing a strong positive divergence giving weight to that idea. Stochastic is oversold, so a move up is suggested. •(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.
COMMODITIES: COPPER WEEKLY
Copper is a ubiquitous industrial material and the Copper chart is usually seen as a proxy for sentiment about world economic strength. •Copper moved down this week -1.6%. Like most risk assets it had a poor day on Friday, down-2.45% •Momentum Indicators still have plenty of room to move to the upside, but On Balance Volume suggests otherwise showing a strong negative divergence from price. •The momentum of this move up from early June has been weak – with plenty of overlaps in the chart. It wouldn’t take much to knock this backwards. •A break below the heavy red horizontal support line would mean the chart has completed a huge long term Head/n/Shoulders top. If that happens, the world economy is probably looking at a serious recession and serious stock market declines. •This chart is looking shaky at this stage.
COMMODITIES: CRUDE OIL WEEKLY
•Four weeks ago, Crude Oil was at “last gasp” support level. This week it has again bounced strongly (up 5.07%). •Indicators remain up and looking positive. •Tops and bottoms in the Crude Oil chart tend to occur at or before tops and bottoms in the stock market. The CCI, in particular, is a good leading indicator. •So when Oil turns up from a low level – that’s good for stocks. Eventually, Soros’s reflexivity principle kicks in – and up too far is bad. •The chart has now moved up to a support/resistance level which has produced key moves in the past year. The chart is also close to the 30-WEMA. Expect at least a pause or worse. On a short term (daily) chart, the commodity has had eight straigth days up. That’s pushing things a bit too far. It is very overbought, so at least a short term pullback is probable. •Watch.
COMMENTARY & CONCLUSION
Markets are set up for at least a short term pullback, perhaps much more. Germany and the U.S. in the short term (daily charts) both hit important resistance levels on Friday and fell heavily. In the case of the U.S. that fall occurred on OpEx Day, usually a narrow range day. A break from the usual pattern is highly significant. Crude Oil and the Yen are both at significant resistance levels and are likely to struggle. Copper while heading up for a few weeks has had anaemic momentum – it can easily be turned around. AUD Gold is at significant support – so it might be ready to head up. Bad for the Ozzie stock market.
Australia had a good week this past week but in the short term is overbought. Small Ords and Materials continue to struggle on a relative basis. Small Ords has been underperforming the blue chips and Materials has been underperforming the Consumer Staples. Until we see those two cyclical sectors improve relative to the Fifty Leaders and Consumer Staples (respectively), the Australian market will struggle.
I’ve been saying for some time that the probabilities favour a multi-week rally. Well, we’ve had one. Australia, U.S., and Germany have been in uptrends since early June. This could be as far as it goes. The behaviour of markets in the next few days might hold the key as to what sort of pull-back we get. A bounce off the 20-Day MA’s would be bullish. Otherwise we’re back to support of the uptrend channels. If those break lower, then we’re in for an ugly August/September. August/September are historically weak months. Markets don’t have to follow seasonal tendencies – but they’re worth keeping in mind. Momentum indicators on the weekly charts still have plenty of upside room for movement, so any pullback might be muted.
At this stage, the medium term trends in the bellwether indices are up – except for China. Commentators are fixated on news out of Europe and hanging on every Bernanke word waiting for QE3 to be mouthed. But . . . China just might be leading the way. China, unlike the other bellwether indices I watch, is in a medium term down trend. The fall since early May has been unrelenting. It is now oversold, but until we see a turn around, the trend is down.
Finally – my own private sentiment indicator. Visits to my web-blog peak at market bottoms and drop off at market tops. Why? Fear and complacency. Fear drives traffic to the blog - complacency - people stay away. Extreme fear exists at market bottoms, and complacency at market tops. The last week was the lowest visitor numbers in the past 32 weeks. Extreme complacency. That suggests a major top could be in place. The numbers have been dropping steadily for the past nine weeks. Nine weeks ago was a market bottom. Nine weeks ago was a visitor peak in the past 32 weeks. Why 32 weeks? That figure looks arbitrary, but I only have stats on a weekly basis going back 32 weeks. Earlier than that they morph into monthly stats.
Long term investors have, of course, been cautious for a long time. It might be time for the medium and short termers to think about defensive action.
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
•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 was up on the week, +2.33%. It is now at a long term horizontal resistance level. The last time it hit such a resistance level (solid red line) it took weeks to break through it. •The three blue lines on the chart represent a Standard Error Channe (SEC)l. This Channel has dominated the sector since early August, 2011. •The middle line represents a regression line. Every time the chart hits the top line it has fallen back. •The RSI is extremely overbought with a reading of 77.1. Rarely do indices reach such levels without a pull back. •The CCI is showing a clear divergence from the index chart suggesting a fall is probable. •I think this is due for quite a pull back. Perhaps to the 30-Week MA and the bottom line of the SEC. Medium term investor/traders might take something off the table. •The Relative Strength XPJ/XJO (bottom pane) shows that Property has outperformed the broad market since August, in 2011. So it’s had a great run. •SLF Dividend Yield: 4.8%. The stock went Ex-Dividend on 25th June (Monday). Dividend declared for the quarter was 13.09c per unit. That’s a small increase on the June dividends paid in the previous three years. 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.)
ETF: WEEKLY STW
STW is the tracking stock for the ASX200. •The stock this week had a good week finishing UP +2.83%. Four weeks ago the stock hit 39.52 and retreated. This week the stock’s high was 39.49. Close enough. Given actions overnight on Friday, this is sure to fall on Monday. Failure at resistance is a bearish event. •The chart is also at the 30-Week EMA – a resistance level which might cause problems. •Momentum Indicators still have room to move to the upside, so bulls have some hope. Take buy/sell signals from the XJO chart. •Dividend Yield: 4.5%. The stock went ex-dividend on 25 June – dividend was 65c per unit. For the financial year, the dividend was 170.79c – the best since the the GFC. •(STW is the Exchange Traded Fund which tracks the performance of the ASX200.)
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