Sunday Smorgasbord. Week Ending 26 February, 2016.
I've made a change to my regular format this week. I've left off the Stock Ratings Charts - I'll return to them next week. This week I've included some charts which emphasise the fact that it is far from all Doom and Gloom in our market. The Doom and Gloomers look at the raw figures for the market and the direction of the trend - but there are plenty of good stocks performing very well in the current conditions. That's what I address this week in looking at a number of charts for the Australian market.
CONTENT
- Australian Market: Weekly Performance Chart plus charts for XTL, XFL, XMD, XSO
- Australian Market. XJO - Monthly, Weekly, Daily Charts.
- ASX 100 - Sector Ratings and Chart for the Industrials Sector (XNJ)
- America - SP500 Daily and Cumulative NewHighs-NewLows.
- Summing up.
AUSTRALIAN MARKET: SECTOR PERFORMANCES IN THE PAST WEEK.
XAO down this week, -1.26%. Six Sectors were down (XUJ -1.11%. Telecomms -0.18%. Materials -1.54%. Financials -2.38%. Energy -3.2%. Consumer Staples -4.78%.)
Four Sectors were up (XIJ +0.11%, XNJ +3.98%. Health -0.53%. XDJ +0.03%).
Those figures look anything but bullish. But they hide a seismic shift which appears to be going on in the market. This week despite the XAO being down, 67% of stocks in the ASX100 recorded positive results on the DPO (Detrended Price Oscillator). That's a measure of the short term trends in stocks. Then - probably most importantly - 51% of ASX100 Stocks were above the 200-Day Moving Average. That's the broad demarcation line between bullish and bearish. We haven't had bullish figures like this since I began reporting these figures nearly two months ago.
How can this be?
Here are four charts which explain what's going on: 20 Leaders (XTL), 50 Leaders (XFL), Mid-Cap 50 (XMD) and Small Ordinaries (XSO).
Twenty Leaders (XTL):
The 20 Leaders (XTL) comprise the big blue chips in the Australian market. It includes the big four banks, the big diversified insurance companies, the two big miners and Telstra. Together these make up more than 50% of our market. XTL is >12% below its 200-Day Moving Average (curving blue line).
50-Leaders (XFL):
Fifty Leaders includes all the big blue chip stocks in the XTL and 30 other blue chip stocks. Already we can see an relative improvement here. The Index (XFL) is well below its 50-Day Moving Average, but about -9% compared to the XTL -12%.
Mid-Cap 50 (XMD):
Mid-Cap 50 (XMD) is comprised of the lower half of the ASX100. These are large-cap stocks but not regarded as "blue chip". This Index (XMD) is +0.41% above its 200-Day Moving Average.
Small-Cap Stocks (XSO):
XSO is comprised of the smallest 200 stocks from the ASX300. The top 100 stocks in the ASX300 is represented by the Fifty Leaders and Mid-Cap Stocks.
Small Caps (XSO) is also above its 200-Day Moving Average by +0.57%.
So, we can see just what is holding the market down. And its the 20-Leaders. Any improvement in the big Financial stocks and the big Miners and our market would take off like a rocket.
Here's another measure of market breadth which helps to confirm the above figures: Cumulative UpVolume-Down Volume.
This chart shows the cumulative effect of Volume going into Stocks Moving Up each day, minus the volume going into Stocks Moving Down each day. This is an extremely bullish chart.
The broad market in the Australian stock market is relatively healthy, it is being held back by a small segment of the market which, unfortunately, is located in the largest capitalised stocks. On an equal weight basis, rather than a capitalisation basis, our market may even be above the 200-Day Moving Average - that's a bullish indicator.
AUSTRALIAN MARKET: XJO - Monthly, Weekly, Daily.
Unfortunately, despite all that optimistic talk above, this chart is looking decidedly pessimistic. With one trading day to go in this month, the chart has clearly broken below the important Support/Resistance line from 2010/2011. There is a long(ish) tail on this month's candle which suggests that there's been some buying strength during the month but not enough to turn the candle bullish. So far this month, the XJO is down -2.51%. It seems highly unlikely that much of that can be pegged back on Monday. Last day of the month is often bullish, so we might see some upward movement, but not enough to erase the deficit as it stands.
XJO down this week -1.47%.
Our market began a bear market in April 2015. So we're getting close to a year since the down trend began. That's a fairly long period of time.
The Long Term Stochastic (50.10.10) remains in oversold territory. The Bollinger Bands on that Indicator are squeezing together. In a down trend, that sort of squeeze doesn't usually last for long because of the heightened volatility. So a big move is coming. Watch this indicator carefully. A move to the upside could spell a solid rally.
This week's fall has brought the Index back to dual support: a minor Horizontal Support and the Restraining Line of the old Bullish Falling Wedge. Dual supports are difficult to break, but not impossible. But the probabilities are now tilted a little to the upside. The last two candles are both "doji" candles representing indecision. A big move to the upside here would be very bullish.
The chart pattern could be an evolving Inverse Head/n/Shoulders Pattern. If that does form, then the Index will have a good shot at reaching the 200-Day Moving Average. All speculation at this stage, but the possibilities are good.
Sector Ratings
Here's the chart for the Sector Ratings:
These ratings look at the strongest and weakest stocks and sectors in the ASX100. Sectors and Stocks doing better than the XJO should be considered by investors/traders. That's where the money has been going. Remember that these are relative ratings. A stock could still be going down, but going down much more slowly than the XJO so it would have a relatively strong rating. In a bear market, look to defensive stocks with relatively high scores. If a Sector or Stock is positive in the red bars - it is doing better than the XJO over the past 52 Weeks (one year). If the blue bar is positive, the Stock or Sector is doing better than the XJO over the past 52 Days.
The Ratings Chart suggests another seismic shift that may be occurring. For the first time since I began showing this chart, the Industrials Sector is the best performing in both the medium term and long term. That's extremely important, as it has nudged ahead of Utilities and Health which have been the best performers for a long, long time. XUJ and XHJ are both Defensive Sectors, while Industrials is a cyclical sector. So it looks like the weight of the market could be changing from Defensive to Cyclicals. It's too early to say for sure, but it does look positive.
Here's the Chart for the XNJ (Industrials):
This Index has been up 10 out of the past 10 days. Not bad in a bear market. It is very close to a 52-Week High. If it can crunch out a New 52-Week High, that would be a big boost for this index and for the cyclicals in general.
Two outstanding stocks in this sector have been Cimic and Brambles. Both made new 52-Week Highs this week.
AMERICA - SP500
Here's the Daily Chart for the SP500:
The SP500 has formed a double bottom. It looks likely that a test of the top Support/Resistance line of that formation will be tested. A successful test and we're away to the races, at least in the short term.
The broad market in America as measured by the cumulative NewHighs-New Lows has been bearish since late June:
Since late June, the Cumulative NewHighs-NewLows has been bearish. At that time the RSI fell below 50 and hasn't risen above it since. The Index also fell below the 50-Day Moving Average at that time, and the bear signal was confirmed when the 20-Day MA moved below the 50-Day. Long term investors might wait until we get suitable bullish signals (inverse of the ones above) on this indicator.
Summing up:
I've taken a long time today to indicate that all is not bearish in the Australian stock market. We could be seeing a seismic change from Defensives to Cyclicals. The Industrial Sector is now the best performing Index on the Australian market, in both the medium-term and the long-term. It has displaced the two Defensive sectors which have been the best performers, Utilities and Health. It is still too early to say - but it does look promising.
The weakness in the Australian market lies largely with weakness in the big blue chips: the big banks, the big insurers, the big miners. But the Mid-Cap 50 is above its 200-Day MA, and so is the Small Ordinaries. Breadth in our market is good.
The American market is also showing signs of a possible end to this bear correction. The SP500 has formed a double bottom. That is a reasonably reliable chart formation.
For longer term investors watching the American market, look for a bullish reversal on the Cumulative NewHighs-NewLows Chart.
Our market is looking precarious due to the bearish effects of the Twenty Leaders (XTL). If you can look past that, there is good reason to be optimistic.
RB
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