The Weekly Slow Stochastic shows a reading now at 20.99. Below...

The Weekly Slow Stochastic shows a reading now at 20.99. Below its signal line, above 20 and heading up. Neutral. A cross above its signal line would be a medium term buy signal.

WEEKLY MARKET SUMMARY

The market was up modestly this week, +1.47%. Almost all of that rise was on Wednesday due to a big night up on Tuesday night in America, following up on good half-yearly report from Westpac the previous day which saw all the major banks put on large gains.

Eight out of ten S&P Industry Sectors were up. The two sectors down were: Materials (-0.53%) and Industrials, down marginally at -0.06%. The big winners were Health (+3.66%) and Consumer Staples (+3.19%). That rings alarm bells for me the market was up, but the two best sectors were Defensive Sectors. The Financials also had a good week, up +2.94%.

Best Three Sectors:

Health: +3.66%
Consumer Staples: +3.19%
Financials: +2.94%

Worst Three:

Information Technology: +0.07%
Industrials: -0.06%
Materials: -0.53%

Among the sub-sectors: Property Trusts were down, -2.09%; Metals and Mining were down
-0.63%; and Small Ordinaries, +0.28%. The 50-Leaders was up at +1.9%. Risk Aversion/Risk Seeking was biased strongly to the Risk Aversion side. Once again, the 50-Leaders outpointed the Small Ordinaries by a wide margin. This reinforces the Defensive stance of the market mentioned above. Gold Mining was down, -2.74%.

Chart One Weekly % Change



XAO (All Ordinaries), XUJ (Utilities), XTJ (Telecommunications), XSO (Small Ordinaries), XPJ (Property Trusts), XMJ (Materials), XMM (Metals and Miners), XIJ (Information Technology), XNJ (Industrials), XHJ (Health), XGD (Gold Miners), XXJ (Financials less Property Trusts), XFJ (Financials including Property Trusts), XEJ (Energy), XSJ (Consumer Staples), XDJ (Consumer Discretionary), XFL (Fifty Leaders)

LONG TERM TREND

Last week I said: "The long-term trend is determined by the 13-Day SMA and the 150-Day SMA. The 13-Day SMA has broken marginally below the 150-Day SMA. This occurred while the Index is heading upwards the Index must be congruent with the MA (in this case headed down) for the signal to be taken. The Index must also decisively break below horizontal support which currently lies at the 4500 area the Index is marginally above that area." Nothing has materially changed this situation. A couple of negative days could see the XAO break below the 4500 level. Overhead is plenty of resistance to slow the advance."

Chart Two XAO long-term trend.



MEDIUM TERM INDICATORS

Chart Three Weekly XAO.

The Weekly RSI has turned up above the mid-line. The RSI Stochastic (30), which was particularly good at indicating the start and finish of the bear market, has crossed below its mid-line and still heading down. A move up by this indicator would suggest that the current pullback has ended. The Weekly MACD is showing negatively below its signal line and has formed a bear shoulder. It is still above the Zero line thats a positive. But there is no divergence on the histogram that usually precedes a reversal upwards.

This week the XAO continue to pull up from the 4500 Support area. The XAO is now tagging the 30-Week Moving Average from below. This may provide further resistance. Now, the question is: Is the market forming a base for the next move up, or is this a consolidation at the lows before the next move down? Plenty of arguments either way can be made. While 4500 holds, the balance is with the bulls.



SHORT TERM INDICATORS

Chart Four DAILY XAO.


The divergences on the Indicators (RSI, MACD Histogram, and StochRSI30) from two weeks ago have played out beautifully. The Index (XAO) is now at strong resistance. The RSI has fallen back below its mid-line in agreement with the StochRSI30. The MACD is still well below the Zero line all of these are the boundaries between bull and bear.

Swing traders are sitting on nice profits from the past two weeks.

Conservative investors are waiting for Indicators to cross to the bullish side.

The 89-Day MA, which has given good support throughout this bull rally, is now over-head offering another level of resistance as well as the box in the chart above.

THE OZZIE DOLLAR

Currencies tend to trend quite strongly once into a trend. For that reason weekly Renko charts are a good way of keeping track of the long-term trend in currencies. Renko charts cut out much of the noise experienced by other charting methods. Used in conjunction with a Parabolic SAR (Switch and Reverse see dots above and below the chart) and a Slow Stochastic, they provide a fairly reliable guide to long-term trends in currencies. (Renko charts ignore time and volume and add a box each time a pre-determined amount moves the chart. White blocks are up and red blocks are down. A series of red blocks in conjunction with a PSAR switch and a move by the Slow Stochastic below 80 represents a change in trend from bullish to bearish.)

The Renko Chart for the Ozzie Dollar has given two warning signs for a trend change a red block and a move by the Weekly Slow Stochastic below its signal line. A change in trend will be confirmed if the Slow Stochastic crosses below 80 and the PSAR switches from below the blocks to above the blocks. If that happens while the XAO crosses below 4500, we will have a strong secondary signal confirming a change in trend in the XAO.

Chart Five Australian Dollar Weekly



SECTOR ANALYSIS

Ive been trialling a new way of ranking the Industry Sectors. Im not sure yet of its efficacy but it seems to provide some promise. Basically it shows a percentage change of the Relative Strength Chart 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:

Positive:
1. XIJ (Information Technology): +9.93% (1)
2. XHJ (Health): +4.81% (4)
3. XNJ (Industrials): +3.95% (2)
4. XUJ (Utilities): 1.35% (5)
5. XSJ (Consumer Staples): +0.96% (8)
6. XDJ (Consumer Discretionary): +0.8% (3)
7. XFJ (Financials): +0.39% (7)
Negative:
8. XMJ (Materials): -1.3% (6)
9. XEJ (Energy): -4.37% (9)
10. XTJ (Telecoms): -7.53% (10)

Once again we see how defensive the market has been despite a positive move up. Last week we had only two sectors in the Positive group. This week we have seven sectors. But that group is dominated by Defensives taking up positions 2, 4 and 5. Given that Information Technology is a small part of the market, it can be discounted. So three out of the four top sectors are defensives despite a move up in the market. Meanwhile, the two most important cyclical, export-oriented sectors (Materials and Energy) are in the Negative group. The other biggie (Financials) is only just in the Positive group. Something is not right if you are of the bullish persuasion.

50 LEADERS

Last week:
No. Stocks above 10-Day SMA: 28 (56%)
No. Stocks above 50-Day SMA: 14 (28%).
No. of Stocks above 150-Day SMA: 27 (54%).


This week:
No. Stocks above 10-Day SMA: 36 (72%)
No. Stocks above 50-Day SMA: 16 (32%).
No. Stocks above 150-Day SMA: 30 (60%).

Chart Six 50 Leaders: % above 10, 50, 150 SMAs



These figures and Chart show a reasonable rise by the Short Term measure (Stocks above the 10-Day MA blue line). The movement in the Medium Term (Stocks above the 50-Day MA red line) and the Long Term (Stocks above the 150-Day MA yellow line) are, at best, tepid.

This rally doesnt have a lot of oomph behind it.

IS IT DIFFERENT THIS TIME?

How many times have we heard, Its different this time.

At this stage in the report, I usually present various charts of Advancers/Decliners. This time I thought Id do something different because Ive noted something which suggests that this time (in the market) something is different. Since March were accustomed to retracements followed by strong movements back to the upside confirming the up-trend.

Probably the most important stock in the Australian stock market is BHP. It is certainly the largest by capitalisation. It represents 10.63% of the All Ordinaries Index (XAO) and nearly 20% of the 20-Leaders which make up the core holdings of most managed funds. So what happens to BHP matters to the market. It is THE bellwether stock of the market. Following is a chart of BHP:

Chart Seven: BHP



For the fourth time, BHP has dropped down to the strong up-trend line. On each of the previous three times, BHP has rebounded strongly and quickly to make new highs.

This time it is different. BHP has held the up-trend line but is now struggling no new high. That doesnt mean it cant go on to new highs nor does it mean that it will break the up-trend line to the down side. But, at this stage, it is different. So BHP bears watching (forgive the pun).

AMERICA

Heres a Weekly Renko Chart for the Dow Jones Industrial Average.

This chart shows how valuable these charts, in combination with a PSAR (dots above and below the chart) and Slow Stochastic (lower pane), can be for the long-term conservative investor. At this stage the chart shows no sign of reversing. The only inkling is the over-bought nature of the Slow Stochastic, but we can see that the SS stayed oversold for 10-months (below 20) during the GFC, so the current overbought state (above 80) of the SS is of no real concern. If it breaks below 80 and the PSAR switches to the upside (bearish) then, probably, a new down trend will have begun. (The blue vertical line shows the definite change, for the conservative investor, from bearish to bullish back in April09

Chart Eight: Dow Industrials



CHINA

Chart Nine: FXI (ETF Xinhua China 25 Index)

The Chinese stock market tends to be a leading indicator for the worlds stock markets. It topped out earlier than our market in 2007 and bottomed before ours at the end of 2008. The FXI still hasnt clearly reversed, but it is giving out warning signals.

The Renko chart shows a red block as the most recent block, and the Slow Stochastic has broken below its signal line. To show a clear trend reversal, the PSAR needs to switch to the topside, and the Slow Stochastic needs to break below 80. We will continue to watch closely.



INDUSTRIAL METALS

Industrial Metals are often described as having a PhD in Economics, since they tend to predict down turns in the world economy better than most economists.

Chart Ten: Industrial Metals



The Industrial Metals chart for the past two weeks has moved strongly up from the Congestion Zone (blue oval) and the 40-Week MA. RSI has bounced above its mid-line. StochRSI (30) is now registering an up-trend. The only negative is the Weekly MACD which is still below its signal line. This chart is now looking quite positive.

LEADING ECONOMIC INDICATOR
Its been a long time since Ive shown a Weekly Leading Index Chart based on data from the (American) Economic Cycle Research Institute. Data on this chart lags by a week (because of data collection issues.)

Chart Eleven: Weekly Leading Index


For the first time since the bull rally began in March09, the chart line has broken below the 13-Week Moving Average. A disquieting development.
SUMMARY

Negatives:
o Strong showing by Defensive Sectors in an Up week.
o Relative outperformance by 50-Leaders over Small Ordinaries in an Up week (flight to quality).
o Warning signals in the Ozzie Dollar
o Recent stodgy performance by BHP. (It has moved up strongly after previous reversals.)
o Stodgy performance by 50-Leaders during the past two weeks of up movements.
o Warning signals from Chinese stocks.
o Reversal in the Weekly Leading Index from ECRI
o Daily MACD for XAO below Zero line.

Positives:
o Bounce by XAO off crucial 4500 support area.
o XAO above the 150-Day Moving Average
o Continued strength in the Dow Industrial Average.
o Continued strength in the Industrial Metals Chart.

The Negatives are largely warning signals. Until the XAO decisively crosses below the 4500 support level, the advantage continues with the bulls.

Watch for Black Swans they can appear at any time. (PIIGS, China, Iran, terrorists, tsunamis, earthquakes, volcanoes, Venezuela, Argentina, California, who knows what? the list goes on and on.)

Keep watching the blog for daily updates (Monday to Thursday). http://redbackmarketreport.blogspot.com/

Cheers
Red