This week the market resumed the slow grind. Monday was a strong positive day, the next four days barely moved. The XAO was up +1.22%. In five weeks, the XAO has moved up just 293 points. But who can complain about steady increments?
Eight out of ten S&P Industry Sectors were up. The two sectors down were: Industrials, -0.48% and Consumer Staples, -0.46%. The best two performers were: Energy, up +4.14% and Telecommunications, +4.56%. Note that the two best performers are the perennial dogs of the market. Hmmmm. Not sure what that means. Maybe everybody gets a turn at the trough, eventually? And maybe only scraps are left in the bottom of the trough? We shall see.
Among the sub-sectors: Property Trusts were down, -2.29%; Metals and Mining were up +1.23%; and Small Ordinaries, +1.85%. The 50-Leaders was up at +1.1%. Risk Aversion/Risk Seeking was biased to the side of the Punters. Gold Miners had a fair week, +1.55%. Given that Gold in both US$ and Ozzie$ was down on the week, thats a good result.
Below is a long-term chart of the XAO. It continues to show a long-term uptrend since March09. The 13-Day MA remains above the 150-Day MA. Critical support is shown by the red horizontal line. A break below that would end this long-term uptrend.
Chart TWO Long Term Trend.
MEDIUM TERM INDICATORS
Chart Three Weekly XAO.
The Weekly RSI (2) is above 70 indicating a strong uptrend is in place. A fall back below 70 would warn of an impending trend change. The Slow Stochastic (5,5), is signalling overbought (over 80) but it is a long way above its signal line at 43.04. So the Index can remain overbought for some time before a cross-over of the signal line becomes imminent. The Weekly MACD is showing negatively below its signal line. It is still above the Zero line thats a positive. Such a condition represents consolidation, and not necessarily an imminent fall. The XAO is above both the 20-Week MA and also the 30-Week MA. The Index is heading up towards the Upper Bollinger Band but still has room before it hits that area. With the exception of the Weekly MACD the indicators are positive and suggest that further upward movement is possible.
SHORT TERM INDICATORS
On the daily chart (see below), the XAO is consolidating at the highs. Such consolidation implies the next move will be up. The RSI2 is above 70 indicating a strong short-term trend is in place and this is confirmed by the StochRSI30 which is above 0.8. No divergence exists on the MACD Histogram (13,34,9). The Index is above the 10,20,30 Day Moving Averages and they are in harmony - ascending order. All seems good.
Chart Four DAILY XAO.
The following chart indicates there may be a fly in the ointment.
Chart Five DAILY XAO with Resistance Markers.
The confluence of two important resistance lines (one horizontal and one diagonal) may be enough to stop this advance. A break above the current level would set-up a test of the January2010 high.
THE OZZIE DOLLAR
This week Im presenting a weekly chart of the Ozzie Dollar. Indications are that this is heading higher. The chart is in a large broadening down sloping wedge, which normally breaks upwards. A break above the upper restraining line would be a bullish signal. The RSI2 is above 70 indicating a strong short term uptrend. The StochRSI30 has broken upwards warning of a change in trend to the upside. The MACD Histogram is showing no divergence from price. A positive divergence would be another supporting piece of evidence. On balance, the evidence supports a move higher but it is important not to pre-empt the market. A break higher would be important fundamental support for a move higher in the general stock market.
Chart Six Australian Dollar Weekly
SECTOR ANALYSIS
The following rankings show percentage changes in the Relative Strength Charts of the respective Indices compared to 50 Days ago. This puts changes in each ratio chart on a comparable basis. It also provides a medium term view of changes in the sectors. Rankings for this week (with previous week in brackets) are:
Last week we had eight sectors in the Positive group. This week we have six sectors.
The top of the league table is dominated by Defensive Sectors. Materials and Energy, the two export-oriented cyclical sectors, continue to languish near the bottom of the table, trounced only by the perennial flea-bag, Telecommunications.
This profile is further biassed to the Defensive side than last week despite this weeks rise in the market. This suggests that big institutional investors are positioning for a fall in the market. This is not a precise timing device, but sets the context in which to watch for how the index is behaving. If a fall begins to emerge, its consequences should be taken seriously.
The red arrow indicates that, in the medium term, the trend is up. In the short term, the blue line (50 Leaders above the 10-Day MA) is representing some hesitation having turned down from the overbought level above 80. A negative divergence also appears here between price and the Index with two equal highs in late-February and early-March, while the Index (see chart below) recorded a much higher high in March than in February. Until the mid-term (red-line) decisively turns down, the trend remains positive.
Chart Eight 50 Leaders Index
The second lowest pane in this chart shows momentum which has been sideways since late February. This graphically indicates how stodgy this rally has been for a few weeks.
ADVANCERS AND DECLINERS.
The A/D Line is now leading the XAO Chart as it is now higher than the Octobe09 high. If a new bear market was developing, I would expect the A/D line to weaken ahead of the XAO Chart. This is not happening, in fact, the inverse is happening, so the weight of evidence continues with the bulls.
Chart Nine: Advance/Decline Line:
AMERICA Heres a weekly chart of the Nasdaq Composite Index. The RSI2 and StochRSI30 both indicate that the Index is now in a strong uptrend. The MACD Histogram shows a negative divergence from the Index going back to May09. For how long can a negative divergence be resisted? Perhaps the January/February retracement worked it off. In which case, we can expect further upward movement.
The Index is now close to the high in 2007 and has already surpassed the January high. This could now be setting up for a test of the 2007 high and dragging the American and world stock markets with it.
Chart Ten: Nasdaq Composite
Warning Bells: NDX ( Nasdaq 100), the 100 largest stocks in the Nasdaq Composite Index, has been up 13 days in a row, a rise of 7.3%. Thats its longest run since 1992. (Yes longer than any run during the dot.com bubble.) There cant be much more in this before it takes a rest. But it could easily continue up for another week, although somewhat sluggishly.
INDUSTRIAL METALS
Indicators are showing a strong uptrend.
Chart Eleven: Industrial Metals - Weekly
The RSI2 shows a strong uptrend and that is given support by the StochRSI30 which is indicating an uptrend.
The MACD Histogram was showing a major divergence from price, but that may have been worked off in the January/February retracement. The Histogram currently looks like crossing back above its trend line which would be bullish for Industrial Metals and world stock markets.
WHY?
Last week I presented a conundrum. The small caps index in America (Russell 2000) had gone on to a new bull rally high (like the Nasdaq) while the corresponding index in Australia (XSO Small Ordinaries) was lagging seriously behind the All Ordinaries Index (XAO).
Well I might have to remain perplexed, and put that behind me. This week the Ratio of XSO Volume to XAO Volume reverted to an uptrend which is a bullish indicator. Perhaps the XSO is about to resume its usual position as a leading indicator in the market and take the general market higher. We shall see. It is, however, a bullish development.
Chart Twelve: Ratio Chart XSO Volume to XAO Volume
GOLD AND THE XAO
Above is a Ratio Chart of the Gold ETF (traded on the ASX) and the XAO Index. The Gold ETF represents the price of Gold in Australian Dollars. It is negatively correlated to the All Ordinaries Index; i.e., when the XAO is going up the Gold ETF is usually going down. On this chart, down is good for the XAO, up is good for the Gold ETF.
For some months, the Ratio Chart has been going sideways in an elongated symmetrical triangle. This week the chart broke below the support line of the triangle. This is negative for Gold in Ozzie Dollars, but supportive of a further move up by the XAO,
SUMMARY AND CONCLUSION
This week I began writing with the idea that the report would be bearish. As it turns out, it is much more bullish than I expected. There are strains in the market its had a long run up and is due for a rest. The NDX is particularly stretched to the upside. Does that mean a correction? Not necessarily. Im expecting further upward movement this week before some minor sideways to down movement. Were still in March which is seasonally a strong month. The longer term outlook is still good. There is no indication that I can see that this is ready to return to bearish conditions.
Ive just looked at the Sentiment Review put out by Traders Narrative each week. (See: http://www.tradersnarrative.com/sentiment-overview-week-of-march-12th-2010-3765.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TradersNarrative+%28Trader%27s+Narrative%29) Optimism is at an extreme high which usually occurs before a fall in the market. Given the Defensive profile presented in the Sector Analysis, this market could be in for a retracement but I cant see that it will be a particularly serious one.
(It looks like Ive joined the Buy the Dips Crowd. ☺. )
Well next week, the facts will change. Perhaps they will turn me into a bear. We shall see.
Unfortunately, I wont be reporting to you of any transmogrification. Im soon travelling to Turkey for several weeks visiting that fascinating country. So this is my last Report for some weeks.
I have a good friend who claims to have a fool-proof method for timing the markets. When I go overseas and stop writing on the Market . . . the Market tanks, falls, goes backwards, The Great Flood begins, the end of the world is nigh.
So there you have it. The fool-proof indicator. Sell everything this week for the end is nigh. ☺
Best of luck. Ill see you in a few weeks.
Keep watching the blog for daily updates (Monday to Thursday). http://redbackmarketreport.blogspot.com/
Well Ill be writing the blog until Thursday then finito for a few weeks.
(20min delay)