snippets from my weekly report, page-2

The XAO on a monthly basis (20 Trading Days) was up +1.3%. The biggest winners for the month were Gold and Property Trusts. The Property Sector was up +11.8% and Gold up +9.6%. The Energy and Financials (less Property) joined the defensives (Health, Utilities, Telecommunications and Consumer Staples) as losers on the month.

COULD WE THEN SEE A SWITCH OUT OF MATERIALS BACK INTO THOSE SECTORS THAT HAVE UNDERPERFORMED. IF SO MIGHT THE MARKET JUST STABALISE AROUND THIS LEVEL.



It seems that the Materials Sector (which includes Metals and Mining) is now the main factor keeping this market up. More on that in the General Observations.



The chart of the XAO is further complicated by the possibility of a complex reverse H&S pattern which has developed over the past six months. The chart (on a close basis) finished above the neckline on Wednesday, then fell below the neckline on Thursday, to finish right on the neckline on Friday. This formation does not show one classic feature of an Inverse H&S in that the classic form has volume decline from left to right, while this current pattern has volume increasing from left to right to reach multi-year highs in the past week.

I DONT UNDERSTAND THIS WOULD YOU MIND EXPLAINING. A REVERSE H&s PATTERN MEANS THE MARKET IS TRENDING UP RIGHT?
THEN SURELY INCREASED VOLUME IS GOOD AS WE MOVE TO THE RIGHT, BECAUSE THEN THE MARKET IS BECOMING MORE CONFIDENT. IF VOLUME WAS DECLINING, THEN I WOULD BE MORE WORRIED AS IT MEANS CONVICTION IS LACKING AS THE INDEXES MOVE UPWARDS.




Now – let me come to what I believe is the cruncher in all this speculation. And we return to the pointer I made earlier, that the main factor forcing this market up now is the Materials Sector.

The chief reason the Materials Sector has been so strong in recent months has been weakness in the US$. When the US$ is falling, commodities such as Iron Ore become more expensive and this benefits the Australian commodities producers like BHP and Woodside Petroleum.

Now, yields on all bonds in America are starting to head north, sucking money into America and causing the American Dollar Index to rise and will surely continue to rise.

In the chart of the AUD/US$, the AUD is now sitting at a previous Congestion Zone and is likely to either trend sideways or, more likely start to drop causing the Materials sector and the general market to drop. With the Financials (ex Property Trusts) already very weak, and the Energy sector beginning to weaken, if Materials also start to weaken, we can look at a return to bear market conditions.


BUT THERE ARE OTHER SECTORS THAT ARE BEING HELD BACK BY THE STRONG AU$. SOME OF THE EXPORT ORIENTATED STOCKS, LIKE CSL, FOSTERS, CPU ETC. SO IF THE AU$ PULLS BACK, THEN THESE SECTORS MIGHT RUN?

I HAVE VERY LITTLE EXPERIENCE WITH TRADING, SO I LOG IN EVERY WEEK TO HEAR YOUR THOUGHTS. (PS I AM A LONGER TERM INVESTOR THAT BUYS INDIVIDUAL COMPANIES ON THEIR FUNDAMENTALS, SO THATS WHY I FIND YOUR VIEWS SO INTERESTING, IT GIVES ME A TRADERS PERCEIPTION OF THE MARKET AS A WHOLE)