Executive Take-away. This is a stock picker's market. Choose selectively. Look for winners in the strongest sectors.
CONTENTS
XJO Charts, Daily, Weekly, Monthly.
Internals - Australian Market.
Sector Watch
Sector Momentum
Sector Charts
Summing Up.
XJO Charts, Daily, Weekly, Monthly
XJO Daily:
The Daily Chart fell this week to the lower edge of the Standard Error Channel and then rebounded. That looks bullish. There is, however, considerable resistance overhead, and considerable support below. This can go either way. The odds favour a continuation of the up trend channel, but don't discount the start of a new down trend channel.
XJO Weekly:
XJO down this week, -0.79%.
In the short term daily chart, there exists some possibility of further pull-back. That shouldn't, however, threaten the long term up trend which could sustain quite a large pull-back and still remain in an up trend. This up trend started back in early 2016.
XJO could still fall another 4% or so and still be in a long term up trend.
The chart remains above the 13-Week MA. That's a positive. Bulls want to see overhead resistance at 5813 broken to the upside. XJO currently at 5753.5
XJO Monthly:
The XJO is up +0.72% so far this month. It is trying to close above the major down trend oblique line from 2007. We have one more week to go in this month.
We are also coming up to the end of the first quarter of 2017. We may see some book squaring take place as fund managers try to improve the chance of bonuses going higher. That might put some upward pressure on stocks and push the XJO into a bullish scenario.
INTERNALS - AUSTRALIAN MARKET.
XJO was down this week.
The number of stocks in the ASX100 above the 200-Day MA remained little changed from the previous week. The number of stocks above the 200-Day MA came in at 65%, compared to 63% the week before The Number of stocks positive on the DMX Histogram moved down from 62% to 55%, about the same as two weeks ago. This is a short term trend indicator and will move more rapidly, week to week, than the long term indicator (stocks above the 200-Day MA).
Both measures remain above the 50% mark - so that remains bullish.
I'd like to see the short term figure (stocks +ve on DMX) higher than the longer term figure (stocks above the 200-Day MA). That would raise the bullish profile of the Index.
SECTOR WATCH
Sector Momentum
This section compares the performance of each sector against the XJO over a 20-Week period. It shows relativities not absolutes.
Here's the previous week's momentum chart (as at 3 March):
Here's this week's Momentum Chart.
Investors took on a slightly more defensive posture this week than the previous week. The top three momentum sectors are Utilities, Health and Financials X-Property. Health improved from third place to second place, while XXJ dropped a place.
Three out four of the top sectors are defensive sectors.
Also of note was the drop by XMJ and the rise of XDJ (despite the big fall in Harvery Norman late in the week).
The XJO can continue to rise despite the improvement in the defensive sectors, so long as Financials X-Property (XXJ) continues to perform positively.
SECTOR CHARTS (Daily)
XMJ (Materials)
XMJ had a poor week, down -2.1%. It's relative strength against the XJO peaked in late January and has been sliding since.
XMJ could be on a rebound, but needs to close above the pivot of mid-March to prove its bullish credentials. Until that happens, we'll consider any move up to be a counter trend rally.
The strongest momentum stock in XMJ by far is BSL; in fact, it is the strongest momentum stock in the ASX100. But with a rating of 0.469 it is well off its rating of >0.8 a couple of weeks ago. BSL was down -7.8% this week. So there's not much to recommend it at this stage. Iluka is next best in the XMJ, but with a rating of 0.077 we can see that there's a big gap between it and BSL.
Nothing in XMJ looks likely at this stage.
XEJ (Energy):
XEJ flat this week -0.05%. XEJ, like XMJ, peaked against the XJO in mid-January and has since been sliding, although it did do a little better against the XJO this week.
The best stock is Origin Energy, but with a momentum rating of 0.15, it is not particularly strong.
3. XXJ Financials X-Property:
XXJ fell this week -1.28% but rose strongly on Friday +1.18%. It is the third strongest momentum sector in our market. While it stays on the positive side of the momentum chart, the XJO has a chance of remaining bullish.
The three day candle pattern is a classic bullish reversal pattern, and that pattern is strengthened by the fact that the bounce came off the 65-Day MA.
The strongest stock by far is QBE. It is currently in a sideways trend and keeping pace, more or less with the XJO. It needs to break above horizontal resistance at 13.01. It is currently at 12.82.
QBE is on a dividend yield of 5.1% with 100% franking. That's juicy.
XUJ Utilities
XUJ rose +1.65% this week and remains in a strong up trend. It's the strongest momentum sector in our market. That doesn't mean a lot, as it is a relatively small sector.
Ausnet (AST) has become the best performing stock in the sector with a momentum rating of 0.229. APA and AGL are also performing well. AST pays a dividend of 5.1% with 100% franking. Nice.
XNJ Industrials
XNJ climbed above the 200-Day MA this week. The 200-Day MA had formed a curving dome providing resistance to any substantial upside move. Now that the Sector has climbed above that resistance, and horizontal resistance, it is worth some attention from investors. Longer term it still needs to climb above major horizontal resistance.
The best stock in this sector was Downer EDI. That came to a screeching end this week when its capital raising to get funds for its take-over bid of Spotless went poorly. Downer down on Friday >25%.
Aristocrat Leisure is the top momentum stock with a rating of 0.38. It has been a perennial top performer for many months. It is, however, a growth stock and pays poor dividends. Next best is TCL (momentum rating, 0.2), an infrastructure stock, which pays a dividend of 4.3% but low franking credits.
XSJ Consumer Staples
XSJ finished the week well to be up +0.68%. It is in a solid up trend.
TWE is now the strongest stock in the sector, although it's not especially strong. Not a lot appeals in the Consumer Staples sector, unless you want to get the dividends from Woolworths and Wesfarmers. Woolworths has a slight edge over Wesfarmers on momentum strength, but there's not much in it.
XHJ Health
Health is in a solid up trend, and rose this week +0.91%. It is currently in a short term sideways trend. It needs to get above horizontal resistance. Any pull-back is probably a "buy the dips" scenario.
The two strongest stocks are CSL and RMD.
XPJ Property
XPJ flat this week -0.11%. It remains below the 200-Day MA.
Property is a mixed bunch with the shopping centre stocks (VCX, SCG AND WFD) putting significant drag on the Sector. GPT is also performing poorly.
Lend Lease, Goodman and Mirvac are all relatively strong (although not especially so).
The strongest stock is LLC. It's on a dividend yield of 4% (no franking).
In general, however, there are better opportunities elsewhere rather than in the Property Sector.
XGD Gold Miners
XGD down -1.09% this week. That's not much for this volatile sector.
This is a volatile industry group with a lot of small cap companies. Good traders can make money here, but it's not for investors - unless they're convinced we're entering a secular bear market, when Gold tends to outperform.
XGD has the potential to do well in the near future. The Index is nudging the 200-Day MA, and a short term up trend could see the 13-Day MA burst up through the confluence of the 65-Day and 200-Day MAs (a Gordian Knot?). If you're into trading this could pay big dividends in the near future. Watch.
XDJ - Consumer Discretionary.
XDJ is another sector knocking on the 200-Day MA resistance level.
Until, however, it can break above the 200-Day MA, it's best to treat it with circumspection.
Not too many stocks are doing well in this relatively large sector. Fairfax (FXJ) is the strongest of them. It is on a dividend yield of 3.9% with 70% franking. There are good reasons for avoiding Fairfax. Much speculation has been reported in the media that it could be a take-over target. If that speculation proves without foundation, the stock is likely to tank. This is one for the punters.
XTJ Telecoms.
Telecoms had a poor week -3.23%. It is the weakest sector in our market.
Leave this sector alone until we see definite improvement.
Summing Up:
Our market surprised on Friday with a solid performance +0.8%, and that completed a bullish three day reversal off the 65-Day MA. That's looking positive while the media is laced with doom and gloom over the political situation in America.
We need to see our market close convincingly above overhead resistance around 5813 before considering putting more money into this market. Either that or see a reasonable fall and then a bounce off support of 5580.
The market is in transition from a Risk-On market to a Risk-Off market. That doesn't mean it can't go higher, but if it does, it will probably be lead by more defensive issues and Financials rather than the big stocks in the cyclical sectors such as XMJ and XEJ.
With the prospect of a market in transition, risk is increasing for investors. It might pay to re-assess portfolios of stocks and be prepared to sell some winners and look to invest in some of the improvers.
Stick to the strongest sectors, and pick stocks selectively.
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