Week of 01/03, page-158

Weekly Wrap, week ended 5/3/21

XJO up moderately this week, +0.56% after being down the previous week, -1.77%.

Here's the Daily Chart:

The Daily Chart is in Neutral Territory. The Index finished above its 50-Day MA but below its Trigger Line (8-DEMA). But the Hull MA13 is bullish. The Three Supertrend Lines are Neutral with two Blue above the Index, and one Yellow below the Index. The Chart remains above the Ichi-Moku Cloud which suggests it remains in medium-term bullish territory, but it wouldn't take much to plunge this into bearish territory. On balance - Neutral.

Action in the U.S. on Friday night was positive. The worst performing major Index in America has been the Nasdaq. Below is the chart for QQQ, the tracking ETF for the Nasdaq:

Friday's action in the Nasdaq was extra-ordinary. Friday's candle is a very wide range candle. I did a quick eye-ball and I couldn't see a candle with such a range in the past 200 Days. So something significant happened. The long lower tail on Friday's candle indicates strong intra-day buying. That occurred on heavy volume (not shown on this chart). This suggests that institutions (the Smart Money) was responsible for the bullish reversal in the Nasdaq.

CCI gives great divergence signals. It is showing a significant positive divergence, which suggests that the pull-back in the Nasdaq is now over. We need to see follow through action to confirm Friday's bullish action. I'd also like to see DZ Stochastic cross back above its lower band. That would give a "buy" signal on that indicator.

One-Week Sector Changes.

Honours in the sectors were fairly evenly balanced with six sectors up and five down. The best performer was XXJ (Financials) up a whoppping +4.78%. XXJ is the largest sector on the ASX and that ensured a positive finish for the XJO. XXJ has been the best performer on the ASX for many weeks. Second best performer was XEJ (Energy), up +2.93%which continued its recent good run of results

The three worst performing sectors were: XHJ (Health) -4.46%, XMJ (Materials) -2.76% and XIJ (Info.Tech) down -2.4%

My Offence/Defence Indicator is neutral (actually just a tick below the zero line). The important panel to look at here in the chart below is the bottom panel. This shows the relative strength of XJO(ASX200) compared to BEAR (ETF Inverse of ASX200).


When the Mansfield Relative Strength of XJO/BEAR is below zero, it might be time to look at some Defensive strategies.NewHighs-NewLows Cumulative:

NewHighs-NewLows Cumulative remains above its 10-Day MA.

This is an instrument for Long Term Investors. Long Term Investors should remain invested until the NH-NL drops below its 10-Day Moving Average. This measure can be a lagging instrument, although it was spot-on in February 2020. It's buy signal in 2020 came well after the market bottom in late March, 2020.

NH-NL Cumulative remains bullish, but momentum has slowed.

The %NewHighs/NewHighs+New Lows has dropped down to the 60% level. The fact that this chart remains above 50% means that we still have more New Highs than New Lows, but the trend in the above chart is accelerating quickly to the downside. If we see much more deterioration, New Lows will be exceeding New Highs. Then it will be time to get out of Dodge.Strong and Weak Stocks in the ASX100

Last week, 4 stocks made the Strong list. This week 9 stocks made the list. However, 14 stocks made the Weak List this week (15 the previous week). On balance, the Weak Stocks out-weigh the Strong Stocks. We need to see improvement in that weighting so that Strong Stocks out-weigh the weak stocks.Breadth:


This week the number of stocks above their 200-Day MA improved a little, bouncing off the 50% level up to 56%. It still remains below its 10 Week MA.

Almost a year ago, this metric fell below 50% and started the COVID Correction into late March. At the moment, breadth is still positive but only just. Watch for a fall below the 50% mark. That could signal the start of a new correction.

Large Cap Stocks with Low Volatility



Last week, only one stock met the criteria: WBC. Westpac up 4.4%. That obliterates the XJO figure of +0.56.

This week four stocks meet the criteria. The best three are the three big banks: ANZ, NAB, WBC.

Experiment - Momentum Stocks:

As of 1 March, I'm now following the adjusted criteria for investing in Momentum Stocks. The process is: Look at the top three performing Sectors, and select the three strongest performing stocks in each of those sectors. If any chosen stock falls below its 20-Day MA - sell it.

For the past three months, the strongest sectors are XMJ, XEJ, XXJ. The three strongest stocks in each sector are: OZL, ILU, ORA, OSH, STO, SOL, WBC, BOQ, ANZ. All of these stocks are currently above their 20-Day MAs.

Results for the first week are: OZL -4.78%, ILU -4.58%, ORA +0.68%, OSH +4.25%, STO +7.33%, SOL +0.87%, WBC +4.41%, BOQ +3.07%, ANZ 10.2%. Average gain: +2.38%. That's well above the gain this week in the XJO of +0.56%

Inflation:

There's been much talk in the press recently about the possible re-emergence of inflation. That talk has been largely driven by falls in the prices of Bonds (yields are rising).

Here's an interesting chart which compares Base Metals prices to prices of 20-Year Treasury Bonds.

An almost perfect inverse correlation exists between Base Metals Prices and 20-Yr Bonds. Prices of Base Metals are a good indication of how well the economy is performing. By that metric, the economy is going well. Meanwhile 20-Yr Bonds are falling in an inverse correlation. So, for most of us, the bogey man of inflation shouldn't be too much of a concern while the economy is doing well. Note that Base Metals have just given off re-entry signals after a brief dip. That should be positive for our miners in the coming week, which underperformed in the past week.

Conclusion: Our market (XJO) is coasting in neutral this past week, leaning to the bullish side. Experience in the U.S. on Friday night suggests our market will rebound strongly on Monday, with Miners doing well.