XJO (ASX) Vanilla XJO Thread

XJO Weekly Chart
XJO up this week, +1.19% bouncing up strongly off the previous week's candle.

XJO has been in a long-term up-trend since early April. Imposed on this chart is a Standard Error Channel (SEC) which shows clearly the up-trend.

Whenever the chart breaks downwards to the lower edge of the SEC, it has tended to head back up to the top of the Channel. That's where it seems to be headed again.

DMI (Directional Movement Index - bottom panel) is, however sending a warning signal. The Yellow (bullish) Line is intertwined with the Blue (bearish) line.

So the up-trend seems to be weakening.

The strong showing on the XJO has been skewed this week by a big move to the upside by Financials (XXJ), which is the largest of the sectors in the ASX. XXJ was up this week by +3.11%. (See below for further details of Sector performances.)

XJO Daily Chart
XJO was up four out of five days this week, and broke above horizontal resistance on Tuesday.

Horizontal resistance, at a big round number of 8500, seems to be a target for the next move to the upside.

A break below horizontal support/resistance at 8349 would break the current up-trend. That doesn't appear to be imminent despite the American market falling on Friday night.

Stay with the trend until it has clearly ended.

Sector Changes this week.
A quick eye-ball of the chart shows three sectors which were very strong this week. I've already mentioned the effect of XXJ (Financials +3.11%) on the broad market.

The other two very strong sectors, which are much smaller than XXJ, were Technology +3.5% and Discretionary +2.21%. Those three big movers this week are interest rate sensitive sectors, so they may be looking for an interest rate cut in the February RBA meeting. (See below.)

Only the above three sectors (out of 11) out-performed the XJO this week.

Only two sectors were negative this week, the two resources sectors, Energy -2,41% and Materials -1.31%. If Trump is to be taken at his word - wanting energy prices to drop - then the Energy sector is likely to experience more weakness after a strong run-up in previous weeks. Materials, dominated by the three big iron ore miners, are captive of the Chinese economy which has been weak for some time. Until we see stimulus measures in China begin to affect

the economy in a positive manner, Materials is also likely to languish.

ASX RBA Rate Tracker.
Expectations of a rate change by the RBA has moved back up to 78% using the ASX Rate Tracker and only a 22% chance of no change.

ASX Rate Tracker uses the difference between the 30-Day Cash Rate Futures and the Current Official Cash Rate to determine the possibility of a Rate change.

ASX provides the usual disclaimer about the their Cash Rate prediction - they must, of course, do that in order to save their backside in case the information proves erroneous.

New Highs and New Lows.
I use this chart as an indicator of a possible major pull-back in the market. Apart from a couple of minor dips in August, 2024 and December 2024, this chart has been bullish for the long-term market.

This week saw a sharp move up by the 10-Day Moving Average of New Highs, while the 10-Day Moving Average of New Lows show a small drop.

This indicator is now well away from a break-down in the difference between New Highs and New Lows. It remains bullish.

Australian Dollar.
Until recently the Australian Dollar vis-a-vis the U.S. Dollar. had been in a strong down-trend since late September, 2024. The 10-Day Moving Average (centre line of the Bollinger Bands) has been in an unrelaenting down trend since early October until mid-January, 2025.

That's important for inflation expectations in Australia. A falling A$ means all imported goods become more expensice for Australians to buy - helping to keep the inflation dragon alive.

The chart has now clearly moved to the upside. Imported goods should become a little bit cheaper, giving space for the RBA to consider a rate cut, which the ASX Rate Tracker is implying and both CBA and ANZ are tipping.

A drop in RBA rates would also be a boost to the bond market. (And make your next overseas holiday a little more appealing from a financial point of view.)

Comparison XAUUSD and Materials Sector
There is also a clear correlation between the exchange rate and the Materials Sector (XMJ). It's not perfect but close enough to indicate an negative effect on XMJ, which is export oriented. An improvement in the exchange rate might spill over into a positive effect on XMJ which, with XEJ, has been a drag on the Australian stock market.

Conclusion.

XJO was up this strongly this week and is in a bullish up-trend.

There seems no reason to expect that the up-trend will end any-time soon.

The prospect for an interest rate reduction seems to have improved recently, which would continue to benefit interest rate sensitive sectors like Financials, Discretionary, Technology and Property.

The prospect of an improving exchange rate for the Ozzie $ may also provide upside to the Materials sector.

New Highs and New Lows continue to support a long-term bullish stance.

While the trend remains bullish - stay with the trend.

Take care.