We’ve just had the solstice. U.S. markets usually move into the Summer Doldrums
CONTENTS
Australian Market. Indices Performance This Week.
Australian Market: Sector Relative Strengths.
Australian Market. XJO – Monthly Chart
Australian Market. XJO – Weekly Chart
Australian Market. XJO – Daily Chart
American Market: Sector Relative Strengths.
American Market: SP500 Monthly/Weekly
American Market: SP500 Daily
International Markets: China Daily
Rio Tinto – Daily
BHP and SLX (ETF for American Steel Companies).
International Markets: Gold Monthly
Summary and Conclusion
SLF – Weekly
STW – Weekly
AUSTRALIAN MARKET: INDICES PERFORMANCE – THIS WEEK
Property: +1.13%
Financials (Ex Property): -0.03%
50 Leaders: +0.05%
Small Ordinaries: +1.92%
Mid-Cap 50: +1.12%
Metals and Mining: +2.43%
Gold Miners: +7.74%
The big surprise this week is to see the two mangy dogs, Consumer Discretionary and Materials, leading the pack. It’s only one week, but we have to consider that the structure of the market is changing – for the better. Watch. (See charts for Rio and BHP towards the end of this report.)
AUSTRALIAN MARKET: SECTOR RELATIVE STRENGTHS
This section provides some more texture and detail to the Weekly Sector Performances in the previous section. (New section this week.)
The first chart shows the Relative Strength of each sector. This is deduced by seeing how far in % terms each sector is above or below its100-Day Moving Average. That’s a commonly used benchmark.
Although the broad market (XJO) was up this week, the Sector Relative Strengths declined. We now have six sectors below 100%. Two weeks ago we had three sectors below 100%.
That’s an early warning sign for the market. On the plus side, the weakest sectors (Materials and Consumer Discretionary) both improved their Relative Strengths. Financials, the most important sector, remains above 100%
The lower panel shows whether or not the Sector is on a bullish or bearish status in the medium-to-long term. This is determined by whether or not the 50-Day MA is above the 100-Day MA. The date of the signal x-over is given. (I might add that this is a quick and dirty way of determining trend – but provides substantive context.) Three sectors are on bear signals. (XDJ, XMJ and XHJ). No change occurred this week. Where a sector is on a bull signal but showing RS below 100, it is probably in a trading range. But that can change easily.
AUSTRALIAN MARKET: MONTHLY CHART – XJO
This is the third week in the month. Down so far in June -1.33%. We now have just over one week to go before the end of the month, end of quarter, and end of financial year.
The dominant pattern on the chart is the Rising Wedge which is a bearish pattern. The chart remains within the Wedge.
Since the end of the significant pivot in October, 2013, the Index is down -0.1%.
This is still a bull market. We’ll know it’s ended when we have a clear break below the Rising Wedge, the 20-Month MA, and the MACD breaks below zero.
AUSTRALIAN MARKET: WEEKLY CHART – XJO
The XJO finished the week at 5419.51, up modestly 0.27% . The chart is now down below the first level of horizontal support but still above the most recent pivot of four weeks ago.
This week’s candle is inside the range of the previous week, which indicates indecision. Even if the pivot of 5372.1 is broken, plenty of support lies just below.
Indicators:
MACD Histogram. Below zero. Negative.
MACD. Beginning to drop. Negative.
RSI.9 is at 49.3. Marginally below its mid-line. Neutral.
CCI.14: -27.5. Below zero. Negative.
Indicators suggest more downside to come. The descending tops (negative divergence) on the MACD is of particular concern. Any further drops might be held by the 50-Week M.A. A fall through that might see the start of a serious correction.
AUSTRALIAN MARKET: DAILY CHART – XJO
XJO on Thursday was rejected at the 50-Day Moving Average. That’s the second rejection at that level. Thursday’s big bounce looked promising, but the second rejection at the 50 DMA looks ominous.
Indicators:
MACD Histogram. Below zero. Negative.
MACD. Below zero. Negative.
RSI.9 is at 45.08. Below zero negative.
CCI.14: -16.9. Below zero. Negative.
XJO is currently in a trading range. The pivot formed by the high of the Santa Rally in early January is looking crucial. A break below that would form a double top on the chart.
At this stage I’m neutral.
AMERICAN MARKET: SECTOR RELATIVE STRENGTHS
This is similar to the chart/table above for the Australian market.
Only one sector out of 9 (Australia has 3 out of 10) is on bear status. No change in status occurred in any sector this week
While the Bull/Bear Status in Australia remained static, in America, it improved.
The Relative Strength figures are much stronger in the U.S. than the Australian figures. No Sectors in America are below the 100% level. In Australia, we have five sectors below 100%.
Positive signals have generally occurred much earlier in America than Australia.
Another common point is that Industrials gave the earliest bull status signals in both Markets. The SPX has remained on bull status since early 2013.
There is no sign in these figures of an imminent bear market. I’d be looking for a majority of sectors on bear statuses and RS figures below 100.
INTERNATIONAL MARKETS: AMERICA – MONTHLY, WEEKLY
The 10/20 Monthly Moving Average X-Overs have provided long-term investors in America a handy buy-sell signal since the late 1980s. Signals are rare and reliable.* Three buy signals have been given (1989, 2003, 2010). Sell signals occurred in 2001 and 2008. There have been some heart-stoppers along the way, notably1998, 2010 and 2011. Long terrm investors won’t be too concerned about ups and downs in the American market until we get a bearish (sell) 10-20 Monthly Moving Average X-Over.
A ‘down” may be close. A pull-back, another heart-stopper or a change in very long=term trend from bullish to bearish? Whenever the chart gets to the top of the three-line Standard Error Channel, some sort of a reversion can be expected. That could be more or less to the mid-line, or back down to the lowest of the three lines. A change in the very long-term trend will be signalled by a 10/20 MA X-Over. But we can certainly expect some sort of a pull-back here. (Note – MACD is in nose-bleed teritory – higher than it was in 2007. That doesn’t mean the market must fall – but it it is wise to take a cautionaryview.)
Looking at the Weekly Chart, SP500 is overbought. Indicators can remain overbought for extended periods in bull markets. This is a bull market. Since late 2012, whenever the RSI has dipped down to its mid-line of 50, it has rebounded and the Index has resumedd its bull advance. This could easily go back up to the top of the channel marked on the chart before any significant retracement occurs – back to the lower edge of the channel. If that breaks significantly to the downside, this might then see a correction. There’s no sign of that as yet.
See the next chart (daily) for near term prospects.
*That doesn’t necessarily mean they’ll work in the future.
INTERNATIONAL MARKETS: AMERICA – DAILY
The pull-back of two weeks ago has now disappeared as the Index bounced off a weak oblique support line. Wednesday’s FOMC statement brought a sharp move to the upside which consolidated on Thursday and Friday. This could easily go up to test the next oblique resistance level on the chart.
Indicators have plenty of downside room for movement.
The past week was Options Expiry Week which tends to be bullish. The week after OpEx Week tends to be a little weaker.
We’re coming up to end-of-month and end-of-quarter. We might see some rebalancing of instituional portfolios in that time. Many funds have mandated balances, e.g., 60% stocks, 40% bonds. If stocks have been stronger than bonds, then stocks must be sold and the proceeds reinvested in bonds, in order to maintain the mandated balance. This past quarter has seen the SP500 go up 4.84%. 20-Yr Treasuries have gone up 2.47%. This suggests we’ll see some selling of stocks in favour of buying of bonds in the coming few days.
That, of course, is only one factor coming into play in the next few days. Funds with mandated balances are just one part of the investment landscape. Just how significant it will be is another matter.
CHINA – DAILY
I had some real hope that the worst was over for China. But the Inverse Head/n/Shoulders formation has failed. The 50-Day MA is back below the 100-Day MA. The index has once again turned bearish.
I’ve often noted in my Summary at the end of this Weekly Report that the Australian market has pressure from two main forces – the push and pull of America and China. America has had a long sustained up trend. China has been in a long sustained down trend which goes back to 2010. America has had the effect of pushing our market up, and China has been pulling it down. Our market, as a result, has had a muddling up trend since mid-2011.
The China effect is most clearly seen in our Materials Index (dominated by Miners) which has been in a down trend since April, 2011.
If China comes good – that’s a positive for our market – particularly the Miners. If China is bearish – that’s a negative for our Miners. This is not looking good.
(China88 is an index composed of the biggest stocks on the Shenzen and Shanghai markets.)
RIO TINTO – DAILY
Rio Tinto is one of the world’s biggest miners concentrating, in Australia, on the production of Iron Ore. Like BHP it is exposed to the vagaries of the Chinese market.
Rio peaked in February, 2014. Peaks in the chart correspond relatively well with peaks in the Chinese chart.
The Rio chart is currently in a down trend channel. That needs to be broken to the upside before any enthusiasm can be generated for the stock. The True Strength Index, which is similar to the MACD but less “noisy”, reached down into a “buy” zone on 18 June. We’ve had a bit of a bounce, but until the TSI breaks its down trend, and then gets above zero, there’s little hope of a sustained rally.
The action of the Money Flow Index is encouraging. While the stock has remained falling in the down channel, MFI has been trending sideways. So, there has been some money flowing into the stock, but not enough to turn it around. MFI also needs to get above its mid-line before this translates into bullishness. Watch.
BHP and SLX (AMERICAN STEEL ETF)
This is a chart of BHP on the Oz stock market with the Steel ETF (SLX) on the American market. The correlation is clear.
SLX has been essentially flat for the past three months (12 weeks). That corresponds with the technical indicators except when we get to the Money Flow Index. While SLX has remained flat, MFI has shown a recent surge. Money is starting to flow into Steel companies in America.
SLX needs to break above the horizontal resistance line to make a sustained bullish move. If that happens, we should also see BHP move to the upside. The MFI is looking optimistic, but we need to see move evidence. Watch.
INTERNATIONAL MARKETS: GOLD MONTHLY
This is a Monthly Chart of GLD – the ETF for U.S.$ Gold.
The past week has seen a lot of optimism for Gold. POG was up over 7% of the week. In the current range going back one year, such surges have happened on three previous occasions. So it is not unusual. Unless you’re positioned before the surge, there hasn’t been a lot of upside afterwards.
That may be changing. The technical indicators are looking positive. July is often the start of a long-term seasonal trend. July/August last year saw a move of over 20%, but then petered out. We are probably on the start of a similar trend.
But, until Gold can get back above the 100-Month MA (blue dashed line), there’s little hope of a new secular bull market. Lots of people are suggesting that can be the case. But until I see some proof that it has started, I’ll continue to think that any up move is a counter-trend rally in an on-going secular bear market.
In the mean-time, traders can probably make good money here.
SUMMARY & CONCLUSION
The Australian market was up modestly strongly this week: XJO +0.27%. Year-to-Date, the XJO is up 1.26%. In America, the SP500 was up +1.38%. YTD, SP500 is up 6.2%. Don’t expect Australia to be highly correlated to America – we have too much negative effect coming from China. America has now had six days up. Seven days up is very rare. Some sort of a pause seems likely
On Thursday, Australia had a very positive response to the FOMC statement, XJO up +1.6%. That took it back up to the 100-Day MA, and was rejected there. XJO down on Friday -0.9%. Until XJO can get back above the 100-Day, I think this will struggle. That movement on our market was, more or less, the inverse of the effect on bonds in America. 20-Year Treasuries down -1.3% on Thursday, up +0.8% on Friday. Scary, huh? Do American bond traders look at the XJO for a lead? Probably not. Just coincidence.
The next few days sees a number of effects pushing/pulling at the market. Many funds, world wide, have mandated balances required between asset classes, e.g., stocks to bonds. With end-of-month, end-of-quarter, and, in Australia, end of Financial Year, many funds will be re-balancing their books to maintain their mandated balances. In America, that should see some selling of stocks and reinvestment in bonds. As well, in Australia, we may see some tax-loss selling, as investors try to reduce their tax bills by selling losing stocks.
This week was Options Expiry Week in America. That usually has a bullish bias. The week after often has a bearish bias. That’s another negative for the market. On the other hand, a favourable response to an FOMC statement, like we saw on Wednesday, sees follow through buying in the next week.
This is what I said about Gold last week: "US$ Gold is in a long term down trend. For the past year it’s been in a sideways consolidation. The current chart action suggests it will swing back to the top of the range. Traders can make money here.” And Gold had a very good week. Even if I say so myself, I’ve been calling Gold almost perfectly for several months. I’ll come a cropper some time. But – at this stage, things are looking promising for Gold. Maybe not in the very short term – but I think this rally has more room to move. Just don’t expect a return to the halcyon days of a secular bull market.
I can’t hazard a guess about next week. Too many factors coming into play. If push comes to shove, I’d have to say we’ll see weakness in the coming week. But I’d be happy to be proven wrong.
SLF is the tracking stock for the Property Sector. This week it was up +0.91%. The stock was overbought and is now consolidating. More sideways or a little downward movement could be expected. Longer term, this seems destined to reach the May, 2013 highs.
According to the Sydney Morning Herald, SLF Dividend Yield is 3.6%. Dividends are paid quarterly. The next ex-dividend date is 26 June. Dividend in the last quarter was .0552 per share. That’s the lowest dividend since late 2011.
(SLF is the Exchange Traded Fund which tracks the performance of the Property Sector on the Australian stock market.)
ETF: STW
This week STW (tracking ETF for the XJO) was up 0.14%. The low of the previous week has held. The last time the Stock pulled back to the 20-Week MA, the stock bounced. That looked likely again after Thursday’s action, but it was crunched on Friday. There’s a possibility that this is forming an Adam and Eve Top. It needs a break of the trough at around $47 for that to be proven. The stock is currently at $51.29, so it has plenty of wiggle room.
But, at this stage, the trend continues to be upwards.
Dividend on STW is 3.9%. Ex-dividend date is 26 June.
It’s unusual to find STW paying a better dividend than SLF. Something is skew-whiff here. Maybe it means something, maybe not. It looks to me that SLF might be over-valued.
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