•XAO: +0.09%. Five of ten S&P Sectors were Up. The four defensive sectors were up plus Financials. Because of the big divvies in the banks, Financials are often also classed as defensives. Those were the five “up” sectors.
•Risk: –50-Leaders +0.62%, –Small Ords -1.44%. –Risk Appetite – Caution prevails. (See XSO chart later in the report.)
•Gold Miners: +3.35% • Property Trusts: +0.03%
•A split week – down then up with a big reversal day on Wednesday. Despite that, the market is still cautious with Defensives and Blue Chips doing well and Small Ords doing poorly.
AUSTRALIAN MARKET: MONTHLY CHART – XJO
•Fourth week of July. Two trading days to go, so judgement is withheld. •The chart is currently at 4209.8. The monthly 10EMA is at 4242.5. Blue oblique resistance line is at 4290.4. Horizontal support at 3864. •MACD Histogram, RSI, and CCI have kicked up. Monthly Stochastic remains on a sell signal. Caution. •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
•The market was up marginally on the week, but that hides the dramatic turnaround mid-week. The long tail on the weekly candle shows how dramatic that was. •All the momentum indicators are on buy signals. RSI has lifted above its middle line of 50. Positive. •This week’s candle remains marginally above the 30-Week EMA. The Index finished at 4209.8 while the 30-WEMA was at 4194.5. Marginal isn’t good enough – but promising. Caution. 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
•A symmetrical week with Wednesday being pivot day – a big reversal day indicated by the long lower tail. •The Chart remains within the gentle up sloping channel. Channel magic. •The 10-Day EMA remains above the20-Day EMA (blue and red dotted lines). Positive. •Momentum Indicators are showing negative divergence from price. This indicates that momentum is low – not necessarily a leading reversal indicator. •Until the lower support line of the channel is broken, we must presume that the medium term up trend is intact.
CURRENCY: AUD/JPY – WEEKLY
•The chart remains in a medium term up trend. Although the currency was up +0.85% on the week, in the broad scheme of things, nothing much has changed. •Weekly Momentum Indicators continue to be positive and remain on buy signals. •The chart is 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. •Support/Resistance: 79.57/82.57 •A break back above the dashed red resistance line would suggest a tilt at the top solid blue resistance line. The currency is currently at 82.23. Not far off resistance. A break above resistance would support further moves up in our stock market. •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. •This week I’ve marked the potential huge Head/n/Shoulders formation I’ve talked about in previous weeks. This has reached extreme danger levels. It doesn’t have a perfect “neck-line”, but a break below the one I’ve marked could have serious ramifications with a target down at the GFC lows. •Relative Strength Chart XSO/XFL (lowest pane) shows no sign of turning up. This provides a good guide to the RiskOnRiskOff (RORO) sentiment of smart 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. Not surprising as there is a correlation between Materials and Small Ords as the Small Ords are heavily weighted with Materials stocks. •So all the comments about the XSO chart are also pertinent here with this exception – the Head/n/Shoulders formation is complete. The neckline has been broken. The Standard Measure Rule suggests this is going back down to the GFC lows. •The Relative Strength Chart of the Materials/Cons.Staples is already 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. •This chart and the previous one makes me pessimistic about the longer term future of our stock market. While the major cyclical export oriented sector (Materials) continues to perform poorly, it is difficult to see how our economy and stock market can perform strongly.
INTERNATIONAL MARKETS: DOW 30 – Daily
•Dow 30 was up 1.97% for the week and closed at 13057.7. Marginally above a strong long term horizontal resistance line. Thursday and Friday were particularly strong. •The short term trend is up. The medium term trend is up. •Friday, a wide-range day on above average volume, might have been an “irrational exuberance” day which conceals a lot of “smart money” selling. •RSI.9 is in “nervous” territory where pull-backs can be expected and CCI.14 is at +171.1. That’s overbought. It can go to +200 and even +300, but those are rare events. These momentum indicators are suggesting a pull-back in a day or two. That accords with recent experience in this choppy market. Chop will give way to a strong trend – one way or the other.
INTERNATIONAL MARKETS: DAX (GERMAN) WEEKLY
•The German market was up on the week, +0.9%. Like other markets it experienced heavy selling early in the week then reversed upwards. That accounts for the long lower tail on the candle – buying 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 up. •Overhead is resistance from a heavy blue oblique trend line and a blue horizontal resistance line. Both represent major areas of old support/resistance. DAX might struggle here. •On Balance Volume is well ahead of the Index Chart. This type of divergence is usually considered positive. I wonder though. We have a new high on OBV but no new high on the Index. It there is that much volume flowing into the Index – how come it’s not making more headway? See next chart for an example of my concern.)
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 topped out in mid-2009. •The Index is almost back down to horizontal support. Momentum Indicators are extremely oversold. But still show no sign of moving up. Until they kick up it’s wise to remain cautious. •We can now expect a test of the late-Dec early-Jan lows. •The importance of the Chinese economy to Australia and the current weakness in this chart explains to a large extent the weakness in our Materials Sector. •Watch. •(You can see in the middle of the chart an example I have of a new high on OBV not being confirmed by a new high in the index. That proved to be a negative.)
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 an up week +1.55%. It bounced this week off major horizontal support line (solid red 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. Other momentum indicators are at low levels and now kicking up. •A strong move up by AUD Gold would be negative for the Australian stock market.
•(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 -0.64%. Like most markets this week it has a long lower tail indicating buying pressure. •Momentum Indicators still have plenty of room to move to the upside but have now moved down. 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. •I’ve marked on this chart a huge Head/n/Shoulders formation which may be developing. It is similar to the ones on the XSO and Materials. Not surprising. A break below dual support of the Neckline and the red horizontal support line would be negative for stock markets and the world economy. •This chart is looking shaky at this stage, but until it completes the pattern, it is potentiality not actuality. Given that XMJ (Materials) has already completed the H/n/S Formation, there’s a good chance Copper will too. Stock prices often lead commodities.
COMMODITIES: CRUDE OIL WEEKLY
•Five weeks ago, Crude Oil was at “last gasp” support level. This week week it stalled but the medium term uptrend persists. This week’s candle shows the characteristic long lower tail indicating buying pressure. Oil fell -1.85% on the week •Indicators are in the middle of their ranges and some have turned down. In a bear market this is where we could expect a reversal. If the market is bullish then this is just a pause before the next run up to a major resistance area. •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. •Watch.
U.S. MARKET PERFORMANCE – AUGUST
•Last week I noted that August & September tend to be weak performing months of the year. •I’ve done some more digging and, since 1928, August is the best performing month in the U.S in the year of a Presidential Election Year. 2012 is a Presidential Election Year. •Now, statistically, the sample is relatively small – 20 observations. So the result is not highly reliable, but worth keeping in mind. •(Chart courtesy of CXO Advisory Group: http://www.cxoadvisory.com/3724/calendar-effects/monthly-returns-during-presidential-election-years/).
COMMENTARY & CONCLUSION
This week saw a euphoric rise in the second half of the week in Australia and two bell wether indices – Dow 30 and DAX. China continues to fall. Those rises maintained the medium term uptrends in place since early June. For the market we’re most interested in, Australia, while the medium term uptrend is maintained you have to stay with it. Respect the trend. A significant break below the lower support line of the up trend channel would be bearish. Of course, short term traders will try to catch the up and downs of this choppy market. Momentum indicators on weekly charts still have plenty of upside room. So the medium term trend could continue up for some time yet.
There are plenty of concerns. It is difficult to believe that Australia can continue to do well if the Materials Sector doesn’t participate. It has completed a massive Head/n/Shoulders formation suggesting a test of the GFC lows. Similar formations exist in Copper and the Australian Small Ordinaries. Both of those have not yet completed their H/n/S formations. Small Ords is on the brink. Momentum in the Copper chart over the past few weeks has been poor, suggesting the risks are to the down side.
The rises this week were underpinned by comments by Mario Draghi, the ECB head, and a joint announcement by French and German leaders indicating determination to defend the Euro financial organisation. Somewhat lost in those comments were poor jobless claims figures out of the U.S. They showed an increase in excess of 350,000. Some big Tech stocks in America also announced poor results, including Apple, the biggest. China performed poorly. Hope for QE3 in America and resolution of European debt worries swamped bearish news. The swings and roundabouts of the market are in play.
August, in the U.S. Presidential Year, has been historically strong. September has been poor. So the medium term uptrend may continue up for some time. But – watch the charts. It’s unwise to maintain a position on the basis of historical performance. That’s no guarantee of future performance.
Long term investors have, of course, been cautious for a long time.
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
•The Property Sector was up modestly on the week, +0.24%. It is now at a long term horizontal resistance level. The last time it hit such a resistance level, around 7.85, it took weeks to break through it. The chart remains within the uptrending Standard Error Channel. •The RSI is extremely overbought with a reading above 75. 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. It is also extremely overbought with a reading in the previous week above +200. •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. But – you never know, trends often go for much longer than we expect. Long termers shouldn’t be concerned unless a decisive break below the 30-Week MA occurs. •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 modest week finishing up +0.23%. Five weeks ago the stock hit 39.52 and retreated. This week the stock’s high was 39.40. A solid break above 39.52 and the 30-Week Moving Average (red dotted line) should see further rises. •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.)
(20min delay)