Glenn “The Gorilla” Stevens doesn’t want us talking ourselves into a Recession. (Don’t mention the R Word.) The Big Goose can’t bring himself to say Deficit. (No, Kerry, I’m not going to say it. No, Kerry, I’m not going to say it. For God’s Sake man, stop blubbering and get off your knees. I’m not going to say it.)
So. For this issue of the WSMR we’re only going to be positive. (And if you believe that, do I have a bridge for you.)
On to the Finance News.
Kylie did Dubai for $4m. Madonna got a divorce and kept all her Loot. Paris Hilton dumped Aussie Rocker, Benji Madden, and kept the Chihuahua. Paris was last seen cuddling a Turkish baby sparking speculation that, after her failed bid for the Presidency, her next foray will not be to take over Wagoner’s job as head of GM, but a new line in Disposable Nappies.
Meanwhile, on the political front, it appears likely that Hillary will become the next American Secretary of State.
Three Small American Car Manufacturers were seen leaving the back door of Congress with their begging bowls empty.
The next car advert you see will be a GM Hummer transforming into a dancing bank, going up to the Fed Window and asking for a bail-out.
Meanwhile, Four Big Foreign Car Manufacturers (Toyota, Honda, BMW and Mercedes) have had their lobbyists prowling the corridors of Congress espousing the glorious benefits of the free enterprise system.
I have been unable to confirm that the Three Big Entertainers (K, M and P) are putting together a syndicate to buy the Three Small Car Makers.
The Australian Stock Market in the past week had a teensy-weensy little dip down.
Nothing to worry about.
XAO down 8%, Materials down only 14%, Energy down only 14%. Those last two are the sectors on which our exports depend, our exchange rate hangs, and by which our economic growth is driven.
Nothing to worry about. Besides which, Krudd the Krool assures us that the government is ready to act. The Gorilla assures us that the economy is strong and the financial system is well regulated. And the Big Goose can see no reason for the Budget to go into DEFICIT. (Oops, he said That Word.) It’s such a comfort to have our esteemed leaders and financial regulators speaking with such confidence about the future of our world.
The Somali Pirates have been heartened to see the latest figures for the Baltic Dry Index. This has finally ceased to plummet and the traditional way of life of the Somali Pirates may no longer be in jeopardy. Big Boats, at least a few of them, are still setting sail into perilous waters to provide those Bully Boys of the Gulf of Aden with a livelihood.
On the graph of the XAO, the chart has now broken downwards out of the bearish expanding wedge format in play since early October. This suggests further falls lie ahead and an acceleration of the downward trend.
The INDICATORS
The All Ordinaries Index (XAO):
• The daily MACD is negative. It is showing a positive divergence to the XAO. This provides hope that the current trend may be coming to an end. But, until it is confirmed by price, one shouldn’t assume that the XAO will start moving up.
• The weekly MACD is negative (this is the “master signal). The MACD histogram is relatively flat showing a positive divergence to price.
• The weekly Slow Stochastic is 18.44. This has turned back down and is below the 20 level. A cross above the 20 level is a signal for active investors to consider adding to holdings.
• The daily Slow Stochastic is at 15.96, up from last week, mainly due to the good kick up on Friday.
• Weekly RSI is at 20.33. This is still in the oversold range below 30. It needs to rise above 30.
• Daily RSI is at 31.04 – a positive divergence has formed on this indicator. The daily RSI has risen above its trend line from early November. This is a big positive. It needs to rise above 50 for market participants to have confidence that a sustainable rally has begun.
As suggested last week, the expanding wedge is a bearish formation and the XAO duly obliged by falling out of the bottom of the wedge. If the XAO should rally, the upper boundary of the wedge will probably halt any further advance. This is now around the 4300 level. Until a break above the upper boundary of this wedge occurs, conservative investors should hold their fire.
50 LEADERS
In the past week, most indicators of the internal strength of the 50 Leaders have shown a deterioration.
The number of stocks positive on the weekly MACD dropped from 14 Stocks to 11 stocks (22.4%). (The weekly MACD is a lagging indicator and takes some time to respond to stock price movements.)
The number of stocks with a positive daily MACD has dropped from 43 just two weeks ago to ten (20.4%) this week. This is now at the oversold level and could mean the 50 Leaders are due for a rally.
Stocks positive on both the weekly and daily MACD dropped from nine to three (6.1%). These were:
AGK (AGL Energy), AXA and TAH (Tabcorp Holdings).
AXA had a meteoric rise on Friday, up 40%. This was the result of a Strategy Briefing in which a positive financial position was declared and ambitious expansion plans in Asia were detailed.
This week we have only two stocks above the 50-day Simple Moving Average (4.1%). This indicator is now sitting well below the oversold level (10).
Only one stock was above both the 50-Day and 10-Day Simple Moving Average. This was AXA.
This week only one stock is positive on all four indicators (Daily and Weekly MACD, 50-Day and 10-Day Moving Averages). Again, this was AXA.
Thirty stocks (61.2%) were negative on all four indicators.
The gap between the Positives and Negatives on all Four Indicators is the widest its been since I began keeping records at the beginning of May.
CONCLUSIONS
The long term trend is down. There are some signs we might get a bounce in the XAO soon, but the expectations for a sustainable rally must be kept on the back burner.
The XAO with a P/E of 7.42 may be ripe for cherry picking by value investors. Value investors may still, however, be nervous that a serious deterioration in earnings will occur during 2009 and that the current P/E is giving a false picture of profitability next year. This is a market ruled by fear and until that fear eases, I can’t see any hope of a sustainable rally.
At the moment, conservative investors should still be out of this market. No long-term position should be taken until indications are clear that a new uptrend is in place.
There are enough positive indicators for active investors to consider entering the market. But be prepared to exit at the sign of a trend reversal. This is still a bear market.
Anything can happen on the stock market. Continue to watch price action, trend lines and the indicators, particularly the weekly MACD. If a sustainable uptrend does ensue, there will be plenty of time to get on board. Don’t get obsessed about catching a bottom.
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