The Australian market again recovered a little ground this week, up +0.21%.
The Australian Market has been in a bearish rising wedge for about three weeks. Whichever way it breaks will strongly influence the future of the XJO probably for the next couple of weeks. The strongest sectors are Materials, Energy and Information Technology, which are primed for a pull-back. For strength in the XJO we will have to look to a contrarian play in one of the weakest sectors, Financials. That will decide our near-term movement.
XJO Charts, Daily, Weekly, Monthly.
Internals – Australian Market.
Copper
Strongest and Weakest Sectors
XJO Charts, Daily, Weekly.
XJO Daily:
For the past three weeks, XJO has been consolidating in a bearish rising wedge. These typically break in the direction of the previous trend. It can go either way. If it breaks to the downside, the 200-Day EMA would probably provide support. That’s my most likely scenario.
The formation of this wedge has been taking quite a long time, so the break out of the consolidation should be a doozy.
For the quarter July-September, the XJO is up a little – in fact, Friday’s move of +0.43% was about it for the quarter. Essentially flat. Might as well have been in risk-free cash.
Currently, indicators are all on “buy” signals. That’s fair enough given the rising nature of the wedge – but not necessarily an indication of the future. Depending on which indicator you look at, the first “buy” signal was about two weeks ago. So those “buy” signals are now looking a little long in the tooth.
XJO Weekly:
XJO had a small rise this week +0.21%.
Indicators are on “sell” signals.. So the weekly and daily charts are out of sync. That suggests that the current rally (the rising wedge) will break to the downside. Wait to see which way it breaks.
XJO Monthly:
XJO is down -1.77% for September. The monthly candle is a bearish engulfing candle. Indicators are rolling over suggesting we will see more downside. The weekly and monthly charts are in sync. Wait.
INTERNALS – AUSTRALIAN MARKET.
XJO was up this week and internals also improved. The number of stocks in the ASX100 that are above their 200-Day MA rose just a little to 57% from 66% the previous week. That’s in line with the small increase in the raw data for the XJO.
Percent of ASX100 Stocks positive on the Directional Movement Index moved up from 40.4% to 51.5%. That’s a neutral reading. The % of ASX Stocks above their 50-Day MA rose from 36.4% to 41.4%. That remains bearish for stocks.
Seven out of 11 Sectors were up this week, but the most important sector (XXJ) was down -0.53%. XXJ includes the four big banks – and that explains the imbalance in breadth noted above. The banks did, however, surge late on Friday after the Interim Report of the Royal Commission. We’ll have to wait and see if we get carry through to the upside in the coming week. If the Friday momentum in the banks continues, then we might just get a break to the upside in the XJO out of its rising wedge formation.
Copper Futures:
Copper Futures came back this week to test the old horizontal resistance level as support. It bounced on Friday off that level, but needs to get above Thursday to provide confirmation. At this stage it is looking positive.
Strongest and Weakest Sectors.
As a general rule buy strong stocks in strong sectors. Avoid weak stocks in weak sectors.
Of the eleven sectors in the Australian market only three are above both their 200-Day EMAS and their 50-Day EMAS and the 50-Day EMA is above the 200-Day EMA. Those three sectors are Materials (XMJ), Energy (XEJ) and Info.Tech (XIJ). These qualify as “strong” sectors.
XMJ:
XMJ has been in a strong upside rally and is now at a horizontal resistance level. Above that is a congestion zone. Short-term Stochastic (14.3.3) is at 91.8 in the “Sell Zone” above 80. Perhaps that should be called a “Do Not Buy” zone in this context. Wait for a pull-back below 20 in the Short-term Stochastic and then bounce to look for buying opportunities.
Relative Strength in XMJ Stocks:
The four strongest stocks are S32, NST, BHP and Rio.
XEJ:
XEJ is in a similar case to XMJ. It has had a strong ABC rally and on Friday’s close is sitting on horizontal support resistance. The “smoke-stack” candle often comes at the top of a range. Short-term Stochastic (14.3.3) is in the “Do Not Buy” Zone. Wait for a pull-back.
Energy is a much smaller sector than Materials. It only has six stocks in the ASX100. The strongest are Santos and Woodside.
XIJ:
XIJ is a long way above its 200-Day EMA, >13%. On Friday it hit overhead resistance and then fell strongly to be marginally negative on the day. Short-term Stochastic (14.3.3) is up in the “Do Not Buy” Zone. Wait for a pull-back
Information Technology (XIJ) is the second smallest sector in the Australian market and has only four stocks in the ASX100. The two strongest are CPU and Xero.
Weakest Sectors: Of the eleven sectors in the Australian market only two are below both their 200-Day EMAS and their 50-Day EMAS and the 50-Day EMA is below the 200-Day EMA. Those two sectors are Utilities (XUJ) and Financials (XXJ). These qualify as “weak” sectors.
XXJ:
XXJ bounced strongly on Friday after the handing down of the Interim Report of the Royal Commission. Until the 50-Day EMA is back above the 200-Day EMA, it is best to treat XXJ with circumspection.
XXJ is the largest sector in the Australian market.
The zero line represents the performance of the XJO. Stocks below the zero line are under-performing the XJO. Stocks above the zero line are out-performing the XJO. The weakest stocks are AMP, IAG, IFL and MPL. Three out of four are insurance stocks. If you must have some financial stocks look to MFG, MGQ and QBE.
XUJ:
XUJ (Utilities) is the smallest sector in the Australian market. The chart is below the 50-Day EMA and is in consolidation mode.
AGL is the biggest drag on the XUJ. Avoid. Although APA and AST are both above the zero line, neither have much appeal. Better opportunities exist elsewhere.
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