Big Rebound this week. Weekly Report, week ending 28 August, 2015.
CONTENT
Australian Market: Weekly Performance Chart
Global Performance: Weekly Chart
Australian Market. XJO - Monthly Chart
Australian Market. XJO - Weekly Chart
Australian Market. XJO - Daily Chart.
Australian Market, XUJ and XMJ - Daily Charts.
America - Weekly
America - Monthly
Summing up.
AUSTRALIAN MARKET: SECTOR PERFORMANCES IN THE PAST WEEK.
The broad market index for Australia (XAO) after falling heavily on Monday had four strong days to the upside, +0.96%. Seven out of ten S&P Sectors were up.
The worst performing Sector was Telecoms, down -3.74%. That was affected by Telstra going ex-dividend on Tuesday. So it's not as bad as it looks. Discounting for the dividend, Telstra still finished on the negative side for the week, thus pulling down the Telecom index. Ignoring Info.Tech, which is inconsequential in size, the next worst peformer was XNJ down -0.3%.
The best two performers were XUJ (Utilities) +3.24% and XMJ (Materials) +3.12%.
GLOBAL PERFORMANCE – WEEKLY
Most world indices had remarkable bullish reversals this week. Even the two indices which were negative (China and Japan) had good buying late in the week.
Here, for example, is the weekly chart for Japan (NK225):
This week's candle is a very long tailed "pin" - which shows that the index fell very heavily and then had a massive rebound. It still finished negative on the week, but the rebound is stunning.
AUSTRALIAN MARKET: MONTHLY CHART - XJO
The XJO this month is down -7.64%. We still have one day to go.
Three of four major indicators are giving bear market signals. The Detrended Price Oscillator is still marginally above zero.
This month's candle has now fallen down to the horizontal support set by the tops in 2010 and 2011. That's a major support level. It also is congruent with the Super Trend Line. This month's candle hit that level and has now bounced strongly. A break below them would be very bearish. Since they have held convincingly it is likely that this pull-back which started in March is now over, at least in the short/medium term.
AUSTRALIAN MARKET: WEEKLY CHART - XJO
The XJO Index is well below the critical support of the 100-Week MA which has provided support on several recent times. Indicators remain bearish.
This week's candle has a remarkable similarity to the one which occurred early in August, 2011. That was followed by a rebound of a few weeks before the index fell once more. It then took many week's of basing action before the index was able to resume a bullish posture. That did not occur until well into 2012. Around one year. We may be looking at a similar scenario this time.
In the meantime, swing traders will probably make a killing.
AUSTRALIAN MARKET: DAILY CHART - XJO
The XJO closed the week at 5263.6.
Monday fell heavily then the Index had four strong up days. Thursday and Friday both show indications of intra-day selling. After four up days, and indications of some selling going on, early next week might see a set back for the XJO.
BEST PERFORMING INDICES THIS WEEK: UTILITIES AND MATERIALS
UTILITIES CHART:
Utlities has been in a long sideways trend since early Feb. 2015. It is the best performing Sector on the Australian market - that position was previously held by Health and Telecoms. There's no convincing argument at this stage to either buy or sell Utilities (which is dominated by AGL Energy). Short term traders will play the swings.
MATERIALS CHART:
Materials has been in a secular bear market since April, 2011. It is currently in one of its counter trend rallies. It is now up against a major technical resistance level of the joint 20-Day MA and the Super Trend Line.
Given the strong results for Base Metals +2.77% on Friday night in America, the Miners seem likely to push XMJ above that resistance level. That will then be five days up in a row. Some consolidation or a pull back is then likely.
I have a private set of indicators which suggest that Materials are close to a medium term "buy" - but we're not there yet.
AMERICA - SP500 WEEKLY.
Here's the Weekly Chart for the SP500:
This week the SPX fell sharply at opening on Monday and then rebounded. This looked suspiciously like the work of the PPT, the Plunge Protection Team, aka The President's Working Group on Financial Markets. This was created in 1988 by President Reagan after the notorious Black Monday Crash, October, 1987. It consists of: U.S. Treasury Sec. , the Chairperson of the Fed, The chairperson of the SEC, and the Chairperson of the Commodity Futures Trading Commission (CFTC). It was created to stabilise markets in cases of extreme abnormal market action. (See Chuck Butler of the Daily Pfennig on this.) I suspect the PPT might also have been at work on other days during the week.
Anyway - whatever happened, the American market averted a major melt-down this week.
I've marked three previous times when the Money Flow Index has fallen below its Lower Bollinger Band - and then returned above that level. In each case the market had several weeks of bullish action. And the long term up trend was maintained.
We may see the same type of action this time.
It may, however, be different this time.
The last two events have occurred in the month of October. The market often rallies from mid-October into year end.
This time, the event has occurred in August. September is notorious for its poor performances. Although up 50% of the time in the past 20 years, the average return has been -0.6%.
Note that in the SP500 chart, the 50-Week MA is close to crossing below the 100-Week MA. If the market rises into that x-over point, and then falls, we're probably in a bear market. If the x-over occurs, and the SP500 pushes right back up through that level, then the bull market is once again back in action. We've probably got a couple of weeks, or perhaps more of upside. Then we'll see what happens.
AMERICA - SP500 MONTHLY.
One of the most respected stock market research organisations in America is NDR (Ned Davis Research). To mark out long term trends in the American market they use a 3-Month/10-Month X-Over signal.
So far with one day to run in August, the 3/10 x-over has occurred. It is doubtful that one more day will affect the result.
Such x-over signals, by their nature, lag the market but, as you can see in the above chart keep investors in long term bull markets and out of serious bear markets. They don't pick tops and bottoms - but take a big chunk out of the middle.
Summing up:
In the current market turmoil, world markets have been relatively well correlated. This often happens under bearish conditions. A few weeks ago, the Australian market was poorly correlated with the American market and the major Europeans. It showed a degree of correlation with some of the East Asian markets. That situation has changed in the past 30 Days. Australia now has a significant correlation with the Europeans (UK, France, Germany, Spain, Italy), New Zealand and Canada. It is showing a weak correlation with America and a very weak correlation with Shanghai and Japan.
The Australian market performed well this week, XJO up +0.94% after being down heavily on Monday. That pattern was repeated in most world markets.
The rebound this week has been very strong. I'd expect some more upside in the next couple of weeks or, perhaps a little more.
The big test will come when the American market approaches the point where the 50-Week MA crosses below the 100-Week MA. If America falls at that point - we're probably looking at a bear market. If America powers up through the x-over point, then the bull market will be resumed.
In the short term I'm reasonably hopeful - but longer term I'll wait and see how the dynamics play out.
(20min delay)