This week is seasonally the weakest in December. Seasonality played out true to form this week, with the XAO down four days and then up on Friday. Only two S&P Industry Sectors were up this week, Telecommunications (+1.26%) and Consumer Discretionary up marginally (+0.21%). The worst performers were Energy (-3.53%) and Materials (-2.5%). The market seemed to take a dim view of the cyclical/export oriented sectors this week.
Best Three Sectors: Telecommunications: +1.26% Consumer Discretionary: +0.21% Industrials: -0.11%
Among the sub-sectors: Property Trusts were up, +0.58%; Metals and Mining were down -3.03%; and Small Ordinaries, -1.86%. The 50 Leaders performed in line with the XAO at -1.52% and performed better than the Small Ordinaries. Risk Aversion/Risk Inclination was weighted to Risk Aversion – natural in a down week. Gold Mining was down a massive -7.99%. This was a reaction expected after the parabolic rise in the price of gold the previous month.
Internationally, Shanghai was down, Copper was down, Hong Kong was down but the Dow was up marginally, still within its sideways consolidation of the past few weeks. The Nikkei was down marginally after one of its best weeks for a long time the previous week. It remains above the 200-Day EMA and the 10,000 level. London was down marginally on the week but remains in a sideways consolidation. Over all, a tepid week.
The long-term trend is determined by the 13-Day SMA and the 150-Day SMA. It is currently positive.
Chart Two – XAO with 13/150-Day Moving Average Cross-overs.
Conclusion: Long term Indicators are giving a hold message.
MEDIUM TERM INDICATORS
Chart Three – Weekly XAO with Negative MACD.
The Weekly MACD has crossed below its signal line. This is often a bearish sign. RSI is still above its mid-line but the Williams %R has now fallen below its mid-line. While the XAO remains in a sideways consolidation, the technical picture continues to weaken.
Chart Four – Daily XAO with MACD below Zero.
This week, the Daily MACD fell below the Zero line and below its signal line. RSI and Williams %R are both below their midlines. This is not a market for buying into.
Conclusion: The XAO is in a counter-trend sideways to downward movement. This could break either way, up or down. A break by the chart line below 4515 would be a highly significant bearish signal.
LEADING INDICATORS
I show the following two charts on a regular basis. Both lead our market up earlier in the year and both topped out in June/July. Neither has been able to breach those tops since.
Chart Five – Ten Year Bonds – America
The 10-Year Bond Yield has had two weeks of strong upward movement. It now appears to be in a medium term sideways consolidation below the June high. A break higher above 35.79 would be a big plus for the stock market.
Chart Six – Shanghai
Shanghai has been in an uptrend for over three months without break above the year high. The technical indicators are beginning to weaken but not decisively.
SECTOR ANALYSIS
Here’s how the 10 S&P Industry Sectors fared, ranked from top to bottom for the past week. The ratings are in order of magnitude with the previous week’s ratings in brackets. No sector scored +100. The “domestic” sectors (Consumer Discretionary, Industrials and Financials) weakened. Materials has continued to rise up the rankings and is now registering positively. Nothing in these figures suggests we are in a bear market (all defensive sectors are negative), thus confirming the long-term trend chart (above).
These Industry Ratings show little change from the previous week. No industry group is rating above +60. The big fall in the Financials may now be over. If it is, then that is a major boost to the medium term prospects of the market. If the Defensives (Telecoms, Health, Utilities and Consumer Staples) flip into the positive area we’ll know that the market is again in a bear market. In recent weeks, Telecoms and Consumer Staples have been showing more strongly; but Health and Utilities continue to languish. Consumer Discretionary improved a little this week; but is still below the long-term trend line on the XDJ/XAO Chart. This is a concern as XDJ tends to lead the market higher and lower. It has, however, kicked up nicely this week in a soft market and is still above the 170-Day SMA.
Chart Seven – XDJ:XAO
IT’S ALL ABOUT THE DOLLAR
The Australian Dollar is in a sideways consolidation. The key support and resistance lines are shown on the chart below. The sideways consolidation has broken out of the rising wedge, but until horizontal support is broken, we must presume the trend remains up. So long as the Ozzie remains in an uptrend, this will support our stock market.
Chart Eight – AUD/US$
50 LEADERS
Last week: No. of Stocks above 10-Day SMA: 25 (50%) No. Of Stocks above 50-Day SMA: 17 (34%). No. Of Stocks above 150-Day SMA: 43 (86%).
This week: No. of Stocks above 10-Day SMA: 21 (42%) No. Of Stocks above 50-Day SMA: 16 (32%). No. Of Stocks above 150-Day SMA: 37 (74%).
Chart Nine – 50 Leaders: % above 10, 50, 150 SMAs
The light orange circle at the top right of the chart shows the area I would have expected the Above 10-Day Percent (blue line) to have peaked. Instead, the blue line has fallen away dramatically from that area. The Above 50-Day Percent (red line) has been showing lower highs since mid-October. This weakness in the internal structure of the market suggests that the next major move will be down rather than up.
ADVANCERS AND DECLINERS
The Advance/Decline Ratio has been weak since the end of October with no spikes up into the high area, while it has been spiking down into the Extreme Low area. Now, it is finding difficulty rising above the mid-range middle line. That contrasts with events during the July/October Rally.
Chart Ten – Advance/Decline Ratio
BOLLINGER BANDS
Chart Eleven – Bollinger Bands and 50-Day SMA
This chart provides another way of conceptualising the trend. The mid-line shown above is the 50-Day Simple Moving Average. Above and below are three lines, each is One Standard Deviation further away from the mid-line. Since this bull rally began in early March, the XAO has spent most of its time above the +1 Standard Deviation Line. This is the Buy/Sell Line. Pullbacks are clearly shown dropping below that line, and the resumption of the uptrend has been signalled when the XAO climbed back above the +1 SD Line. Three times during this pullback the XAO dipped below the Sell Short Line, which is -1 Standard Deviation below the 50-Day SMA. Those were not decisive breaks and the XAO quickly recovered. If a fourth event occurs, it is likely to be successfully in breaching that line decisively. The more attempts the stronger the possibility. However, until that happens, XAO is in “No Man’s Land” (between +1 and -1 SDs). That’s a signal to stay out of the market until a definite trend asserts itself.
CONCLUSIONS
The theme of this week’s report is, I think, quite clear. The market remains in a sideways-to-down consolidation with no clear direction. If the market drops below 4515 long term investors might, perhaps, consider lightening their position with the idea of exiting completely if the 13-Day SMA breaks below the 150-Day SMA.
The internal strength of the market as represented by the Ratio Analysis, 50 Leaders and the Advance/Decline Ratio suggests that the market is weakening. Daily Indicators (MACD, Williams %R and RSI) also suggest the market is weakening. The Weekly MACD has had a negative cross below its signal line.
But we don’t invest in those things. They are just warning signs.
The market remains in an undecided state – until we get a clear direction up or down, it is best to stand aside and wait. The longer we have to wait, the bigger the move. Hopefully, that will be up. But I don’t put any faith in “hope”, so we’ll continue to wait until the market gives us a clear direction.
This week was, seasonally, the weakest in December. The coming week is usually flat. So, if you’re getting bored with this sideways movement – you ain’t finished yet (probably). But – when this thing does get going, there will be an explosive move – whether that will be up or down is yet to be seen.
Keep watching the blog for daily updates (Monday to Thursday). http://redbackmarketreport.blogspot.com/
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