Despite the good numbers on the XAO, the market is still showing risk aversion with the Small Ords doing relatively poorly and the two of the best sectors both Defensives.
AUSTRALIAN MARKET: MONTHLY CHART - XJO
•The chart is currently at 4551.8. The monthly high in October was 4581.8 •The chart took a breather in November after five months up. It now looks set-up to rise above the October high. •Stochastic and CCI are both overbought. They can remain so for months. •This chart has a lot of positives. The uptrend is strong and remains above the 20-Month TMA. The chart possibly shows a move up to XJO 5000. Not a bad move. We’re not going to see that this month, but an April high around there is a possibility. (That's not a prediction, just a possibility.)
AUSTRALIAN MARKET: WEEKLY CHART - XJO
•We’ve now had three weeks of solid buying. That’s not dangerous – five weeks up might be. •Stochastic has crossed back above its signal line – flashing “buy”. MACD Histogram is close to a buy signal with the histogram moving up and only marginally below its zero line. •A break above the downtrend line from April, 2011 would be bullish.
(I put a lot of faith in Weekly Charts for determining general direction. Daily charts are for fine tuning entry and exits.)
AUSTRALIAN MARKET: DAILY CHART - XJO
•This week the Index consolidated at the top of the long run-up and formed a bull flag. Friday’s big move up broke above the small flag to suggest a further continuation of the run-up. Break-outs from such small consolidations are one of the most reliable continuation patterns. This bull has legs. •The Daily Indicators remain high and mostly overbought. That requires traders to be alert and cautious. (Aren’t we always.) But, in a strong bull rally, Indicators can remain overbought for longer than we think possible. •Generally, I’d be hesitant to think that this rally can continue given the state of the Indicators. In this case, I think they’re a sign of continuing strength rather than impending weakness. I could easily be proven wrong. (Weekly Indicators are still supportive of a move higher.) •My preferred scenario: This has the legs to go up to around 4600 before a significant retracement. •The “Buy the Dips Mob” were active on Friday. Their attitude, while in force, should send this market higher.
AUSTRALIAN MARKET: SMALL ORDINARIES - DAILY
•Last week I showed a Monthly chart of the XSO with a potential H/n/S Pattern. If that does form, then our market is in dire straits. The larger context should not be lost sight of. •This week the XSO had a poor week, down -0.76%. But Friday’s action suggests that this pull-back is over. The daily candle is a bullish engulfing candle. The chart has broken back above the 28 November low. Three out of four Indicators have flashed “buy” signals. Stochastic is often late to the party. •Friday’s action supports the thesis that our market is in for, at least, further short term gains.
AUSTRALIAN MARKET: MATERIALS - WEEKLY
•Last week I also showed a long term chart for XMJ with a H/n/S formation completed. •The weekly chart is looking positive, but still has a lot to prove. •Positives: its in an up trend channel. Its above the 40-Week TMA. Indicators are flashing “buy” signals. •Negatives. It still has to break above long term oblique down trend line and then a major horizontal resistance line hovers. XMJ failed at that level in Action in mid-October, 2012. If oblique resistance can be overcome, then horizontal resistance might offer sterner opposition. •All this does suggest, however, that further upside in December is a possibility. It might depend on next week. •Watch.
INTERNATIONAL MARKETS: SP500 - WEEKLY
•The SP500 was up on the week, but only just, +0.13%. The current candle shows a long lower tail indicating buying pressure. That’s the second week in a row. This is similar to the situation back in June-July 2012, the solid start to the June-September, 2012 rally. •There’s a lot to like about this chart. The October-November correction seems to be over. The chart bounced off strong horizontal support and broke above the down trend line. Indicators have turned up and are nowhere near overbought suggesting there’s more upside. •There’s an unusual lack of close correlation between the major U.S. Indices (SP500, Dow 30 and Nasdaq100). Rarely do the SP500 and Dow 30 deviate much from each other. The reason is Apple Inc. Its been in a blue funk. Apple comprises about 20% of the Nasdaq100, so its been impacted the most. Apple makes up about 5% of the SP500, so the impact there has been significant, but not nearly to the same extent as the Nasdaq. Apple is not a Dow 30 stock. So change in Apple has, obviously, no effect on the Dow 30. •In this report we’ll stick with the SP500 for the sake of continuity.
INTERNATIONAL MARKETS: SP500 - DAILY
•The SP500 finished at 1418.07. Support/resistance: 1365/1416.81.
Indicators: 1.MACD Histogram. Below zero. Negative. Histogram was higher than yesterday. 2.MACD. Above zero. Positive. 3.RSI.9 is at 62.5. Positive. 60-70 is the nervous zone. 4.Stochastic. 87. Overbought. Above its signal line. 5.CCI.14: +95. Below +100, but kicking higher.
•SP500 appears to have broken above the bull flag. That suggests this will go much higher. •Although marginally above horizontal resistance marked on the chart, that line has a certain arbitrariness built into it. The chart is in a resistance zone. That’s the best way to think of it. Until the chart can get above the high of 3 December, there’s still some doubt about this move up. •The SP500 is still registering some overbought readings and the RSI is in the nervous zone – but at the lower end. In bull rallies, markets can stay overbought for some time. That may be the case now. •Money Flow (bottom pane) is acting positively – now clearly above the neutral zone (-0.05/+0.05). •The short term pull back we’ve had tracked the 40-Day TMA lower, but remained above that marker. It’s now pulled away to the high side. •There are more positives in this chart than negatives. But it remains vulnerable to a pull-back.
INTERNATIONAL MARKETS: FTSE EURO TOP 100 - WEEKLY
•The Euro Top 100 was up 1.19% this week. More importantly, it has broken out above a major horizontal resistance level. •A couple of indicators are into overbought regions, but after only three weeks up – the indicators can stay overbought for some time yet. •This has been one of the most bullish events in world stock markets this week. It could, of course, be a false break. Let’s see how it goes.
INTERNATIONAL MARKETS: CHINA88 - WEEKLY
•China88 is a Dow Jones Index made up of the blue chip stocks on the Shanghai and Shenzen stock exchanges. •I’ve been hopeful about the Chinese market many, many times since the end of the GFC. It led world markets out of the GFC by bottoming in November, 2008. Australia bottomed in March 2009. Since the initial big run up into mid-2009, the chart has made a series of lower highs and is clearly in a very long term down trend. •This week, I’m more than hopeful, at least in the medium term. The chart has broken above a medium term Falling Wedge. That’s bullish. Indicators are flashing “buy” signals. It still needs to get above the resistance of the late-October, 2012 high. A break above that should see the chart go much higher.
INTERNATIONAL MARKETS BELL WETHER: APPLE DAILY
•Because of its sheer size, Apple has a disproportionate effect on the Nasdaq100 and, to a lesser extent, on the SP500. Recently, Apple has lost nearly 30% of its value, with the low point occurring on 16 November. •That day it had a remarkable intra-day reversal finally finishing positive, +0.39%. That looked like the end of the decline. •Such lows are often retested, and, if they survive are a healthy sign. That’s what seems to be happening this week. •On Wednesday, Apple had a huge down day, -6.43%. The bottom fishers were salivating. The next day, Apple opened down about -10 points, or about 2%. It finished up +1.57%. The Gap on 19 November had been closed. Another positive sign. •On Friday, Apple came under further attack, down -2.56%, but the mid-November low remains intact. •High volatility is often seen at low turning points. (Highs are often accompanied by low volatility, and high volume.) •It’s still too early to say, but if Apple can get above Friday’s high, then the highs of late Nov. early Dec. look likely to be tested. •If the low of 16 November is broken to the down side, then a lot more falls are likely. •A strong positive divergence exists on the Money Flow Index, and to some degree on the other indicators. That suggests the next move will be up. •A move up by Apple would be positive for the whole market.
Any one with an eye for chart patterns would see that Apple has formed a right-angled, broadening formation. These are usually considered bearish, but not highly reliable. Bulkowski (http://www.thepatternsite.com/rabfa.html) notes: ”When price touches the horizontal trend line for the third time and begins rising, buy.” That’s where we are now. Another couple of days should confirm if Apple is bouncing off horizontal support. If it is, then Apple may be in for a medium term up trend and test the recent highs in September.
COMMENTARY & CONCLUSION
This week most of the major world indices I watch did well. China88 was the standout performer, while the SP500 was relatively weak, pulled down by Apple, but it still finished on the up side for the week. The figures: XAO, +0.84%, XJO, +1.02%. Dow 30, +0.99%; SP500, +0.13%; Euro Top 100, +1.19%; China88, +5.07%.
The daily charts for the Australian XJO and the American SP500 both show a break upwards from short, tight bull flags. These are highly reliable formations suggesting much higher moves are ahead, in the short term. The indicators on the weekly charts of the XJO, SP500, Dow 30 and China 88 are supportive of future rises. Europe is getting stretched to the upside on some indicators but the MACD and RSI are not extreme. Indicators on the daily charts are registering high readings, but, in bull rallies, indicators can stay overbought for longer than we think. Analysis of the Weekly/Daily Indicators suggests that a “Buy the Dips” attitude is the best one to adopt. Apple Inc remains the big fruit tree in the room.
The Small Ordinaries in Australia have been particularly weak and suggest a negative long term outlook. In the short term, however, the break upwards from the XJO bull flag was confirmed on Friday by strength in the XSO. Short term, that’s a positive. It looks likely to go higher.
The performance this week by China88 was particularly positive. The big up move provided a break upwards from a bullish falling wedge. Similarly with the Euro Top 100, this week’s action saw a break upwards from a long sideways consolidation. Further up moves are likely.
All of this suggests that a coordinated Santa Rally may be unfolding. After a good November, Santa often waits till well into December before unleashing the reindeer. It still might be a bit early in the month for the rally to start, but market action last week suggests we could be seeing an early run-up this year.
Meanwhile, in America, the Fiscal-Cliff looms. How serious is it? Will a deal get done? Who’ll crack first? I dunno. I’ll just watch the charts. At this stage, looking at the charts, the American market couldn’t care less about the Fiscal-Cliff. Just so much Sturm und Drang created by the media.
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 week saw good buying in the Property Sector. The Index was up, +1.38%. The index finished at 974.7, just short of the October high of 980.5. If it gets over that, it’s blue sky ahead. •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. The RBA rate cut announcement this week didn’t produce an immediate effect, but Friday came good. While we’re in an interest rate falling scenario, SLF should continue to do relatively well over the long haul. •According to Comsec, SLF Dividend Yield is 5.4%. That remains good value. The stock went Ex-Dividend on Friday 28 September, 2012. Dividends are paid quarterly. Dividend for the September quarter was 8.2179 cents per unit. This is a fall on the comparable period last year when a dividend of 9.64 cents per unit was paid. Ex-dividend date in December is traditionally the last trading day of the year, which this year falls on 31 December. •(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 +0.97% after taking a breater early in the week. •Momentum Indicators have reverted to “buy” mode, while the CCI is now overbought. It is often early to the pary. •Take signals from the XJO chart. •Dividend Yield: 3.9%. 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. Dividends are paid half-yearly, so the next ex-dividend date is in late December. The actual date is usually the last trading day of the year – which, this year, is 31 December. •(STW is the Exchange Traded Fund which tracks the performance of the ASX200.)
COMMODITIES GOLD IN AUD – DAILY
•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. •AUD Gold was down this week, -1.28%. (Inverse to the Australian stock market.) The week finished at support with a big reversal “hammer” candle. •Momentum Indicators are oversold and suggest that the next move could be up. •While positive for Oz Gold, it does suggest a possible set-back for the stock market. But this isn’t a timing device. The inverse correlation between Oz Gold and the XJO is loose. •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.)
AUD Gold is tradable on the ASX using an exchange traded fund, ticker symbol: GOLD.
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