Vanilla XJO Thread, page-70

Weekly Wrap. Week ended 31.1.25.

Wall Street Adage. So goes January, so goes the year.

STW Weekly Chart. STW is a tracking ETF for the XJO.

STW up this week +1.54%.

The hcart appears to be in the third phase of a well-known four-phase pattern. 1. Accumulation, 2. Mark Up, 3. Distribution, 4. Mark-Down.

It still has to enter the mark-down phase to confirm.

STW Daily Chart

STW reached horizontal resistance on Friday, on heavy volume. It also suffered some intra-day selling. (See long upper wick on Friday's candle). Those three factors alone suggest we could see some down-side movement. Given the effect of Trump's tariff announcement on the U.S. market at 2.00 p.m on
Friday (New York) time. there seems no doubt that a pull back will occur in the Australian market starting on Monday. I doubt that the pull-back will be a one-day wonder like we saw when the Chinese announced the development (very cheaply) of an AI proramme. Trump's announcement on Friday directly affects the economies of Canada, Mexico and China. There will be flow-on effects around the world.

Much will depend on what countries do in retaliation. China has already announced 75% tariffs on U.S. goods. And so a trade war is beginnin.

Is Trump's move is a gambit to be used as a bargain point, or will this trade war go on and on? If it does - world GDP will fall, and so will world stock markets.

Knee Jerk reactions to Trump's announcement.

I did a quick eye-ball of world markets to see the reaction to Trump's announcement at 2.00 p.m. NY time.

Here are the results. They are not pretty.

U.S. Technology - Down

SP500 - Down

Dow Jones - Down.

Germany - Down.

U.K - Down.

China - Down

France - Down

Hong Kong - Down.

ASX - down ASX Overnight Futures were down -1.19%

VIX - up (VIS tends to trade inversely to the stock market.).

U.S. Oil. - Up

Brent Oil - Up.

Heating Oil - Up

U.S. Bonds - Down then up.

German Bonds - Down then up

U.S. Dollar - Down then up. Probably intertwined with U.S. Bonds.

Bitcoin - Down

Gold - Down.

I thought, before looking at the figures, that Gold and Bitcoin might get a boost as safe havens - but that's not what occurred.

The only clear action was in the Energy complex - which seems to have benefitted.

Bonds didn't know if they were Arthur of Martha. First they fell, then they rose. Probably the second movement (up) is the better indication. So interest rates might fall. U.S. Dollar basket was in sync with Bonds. (Which was the cart and which the horse?)

It's still too early to say for sure what's going on - but for now, it's time to "Get out of Dodge".

I'm not going to go through my usual array of charts - they are bakwards looking - and Trump has made them redundant.

But here's one that might continue to be valid:

ASX RBA Rate Tracker.

Expectations of a rate change by the RBA has moved up to 95% using the ASX Rate Tracker and only a 5% 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.

If I'm reading the tea leaves correctly, Trump's trade war will cement the probability of an RBA rate cut into place.

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 AUD/USD

Australian Dollar is back on a down side trajectory. That's not good news for the Australian Materials Sector (XMJ).

Conclusion.

XJO was up strongly this week, but Trump's wrecking ball will demolish any chance for further upside, at least in the near term.

As you probably know, I'm not one to cry wolf at the first sign of a pull-back. But this time, the consequences seem to be wide ranging. Unless Trump takes a swift step back from his Friday announcement, further bearish action in stocks seems highly likely.

Stay defensive until this demolition job is finished.

Take care.