The market basically went nowhere this week, -0.11%. That marginal drop masked some big internal swings. With reporting season upon us, we saw big moves in some stocks, e.g., Woolworths was up on Friday by +5.46%, QBE down -6.96%. On Thursday Toll Holdings fell -19% and the selling continued on Friday
Three out of ten S&P Industry Sectors were up. The three sectors up were: Utilities (+3.71%), Financials, +1.3%, and Consumer Staples, +1.1%. The big loser was the hapless Telecommunications -5.64%. Once again, two of the best three sectors were Defensive Sectors.
Among the sub-sectors: Property Trusts were up, +2.96%; Metals and Mining were down -0.52%; and Small Ordinaries, -1.18%. The 50-Leaders was up at +0.2%. 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, -1.6%.
The XAO is above the key 4500 area and just ahove the 150-Day Moving Average. The 13-Day Moving Average has dropped marginally below the 150-Day MA warning of a possible end to the bull rally from March09. But until the XAO drops decisively below the 4500 area, the bull rally remains intact
Chart Two XAO long-term trend.
MEDIUM TERM INDICATORS Chart Three Weekly XAO.
The Weekly RSI (2) is above the mid-line but now appears to be stalling. 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, but momentum is slowing. 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 still 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.
This week, the XAO completed a swing up from 4500 to hit 50% retracement level of the January-February fall. It has since retreated below the 38.2% level suggesting the line of least resistance is down.
The daily MACD is below the Zero line which also supports the view that the line of least resistance is down.
RSI(14) and StochasticRSI(30) are both around the mid-line suggesting indecision.
The XAO fell below the 150-Day MA on Thursday and is now tagging it from below. The chart is also below the 50-Day MA.
While there is some indecision, the probabilities lie to the down side.
THE OZZIE DOLLAR
The Ozzie Dollar has formed a broadening top. According to Bulkowski such a formation is more likely to break upwards than downwards, but the bias is not strong for the upward movement.
RSI((2) has turned down after hitting the Overbought level of 70. This is a short term signal suggesting further falls. The weekly MACD is below the signal line but above Zero.
Similar to the XAO, this chart is range bound.
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:
Last week we had seven sectors in the Positive group. This week we have six sectors, only a small change. Utilities (a Defensive Sector) has continued its rise up the rankings. Given that Information Technology tends to be a Defensive in the Australian market (but a cyclical growth sector in America), we now have the three top positions taken by Defensives. Financials have moved up strongly this week from No.7 to No5 to be marginally positive. Materials and Energy, the two big cyclical, export oriented Sectors, are both in the Negative group. This profile is decidedly on the Defensive side.
Following is a ratio char of the 50-Leaders to the All Ordinaries (see below0. In a bull market, the 50 Leaders tend to under-perform the All Ordinaries on a relative basis because investors are willing to put money into riskier stocks. In a bear market, the 50-Leaders tend to out-perform the All Ordinaries on a relative basis as investors switch into safer and less volatile stocks such as the 50-Leaders. The XFL:XAO is now marginally above the 170-Day MA and the 13-Day MA is close to crossing above it. That would be a bearish event. If the 65-Day MA crosses above the 170-Day MA, we can almost certainly presume the bear is back with us.
This week, the per cent of the 50-Leaders above the 10-Day MAs briefly hit the Overbought level and fell back. The per cent of the 50-Leaders above the 150-Day MA is just below the mid-line. This is congruent with the XAO tagging the 150-Day from below.
The action of the 50-Leaders signifies a range bound market. Fine for day-traders, hell for swing traders.
ADVANCERS AND DECLINERS.
Following is a chart of 5-Day Advance/Decline Thrust. The formula for Advance/Decline Thrust is:
o Thrust = Sumadv/(Sumadv+Sumdec) o Where Sumadv = Sum of Advances over the last 5 days, o And Sumdec = Sum of Declines over the last 5 days
Chart Eight: Advance/Decline Thrust:
Overbought on the A/D Thrust occurs at the 0.7 level and oversold occurs at the 0.4 level. Most recently the A/D Thrust chart oscillated at just over the 0.6 level for more than two weeks and has now fallen.
I frequently referred to the rally from early-February as stodgy. This may not be a particularly elegant Technical Analysis term, but, nonetheless, apt. This chart graphically shows how stodgy the rally was. It was unable to reach the Overbought level, while momentum, strong early, later petered out. Once again the line of least resistance is down.
AMERICA
Heres a daily chart of the Dow Jones Industrial Average.
Chart Nine: Dow Industrials
The Dow is currently caught between the a down trend line from Mid-January and the 30-Day Moving Average. The 34-Day Force Index is below the 0 Level (do not buy); but the Daily RSI is above the mid-line. No clear direction is offered.
CHINA Chart Ten: 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 daily chart of the FXI appears to be in the process of forming an Inverse Head and Shoulders formation. If it completes by breaking above the neck-line, this would be bullish for China and our stock market.
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.
After showing weakness for most of the week, Industrial Metals bounced strongly on Friday (American time), up +2.74% in a very strong reversal.
Indicators are mildly bullish with the daily RSI(14) above the mid-line, the StochRSI (30) above its mid-line, and the daily MACD creeping above the Zero line.
Chart Eleven: Industrial Metals
SUMMARY
China and the Industrial Metals bear close watching. They have a big effect on the Australian market. Both appear in the process of developing bullish profiles. If those processes complete, we can expect the Australian market (which has been basically sideways since September09) to return to a bullish profile.
The Australian market continues to hold above the key support level of 4500 on the XAO and no decisive break has occurred of the 150-Day Moving Average.
Defensiveness is appearing consistently in the Australian market in recent weeks so big investors are positioning themselves for further falls. It wouldnt take much to push our market below the 4500 area. Many Indicators suggest that the line of least resistance is down. On the other hand, it wouldnt take a lot to return the market to a bullish stance. If China and Industrial Metals come good, Australia should follow.
Meanwhile, day traders are having a ball, swing traders are tearing their hair out, and medium and long term investors are nervously watching the key level of 4500. So long as that level holds, the bulls maintain the upper hand.
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/
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