Weekend Charts and Chat. 30/31 May, page-40

We've seen a remarkable transformation this week in our market. XJO up this week +4.7%, and finally broke out of its sideways consolidation.

This a chart of STW - ETF for ASX200 (XJO). It has a couple of advantages over a chart of XJO. Firstly, we can get data for volume traded - can't do that for XJO. Second, this chart can show gaps - because of the way the market opens (staggered), XJO never shows gaps - starting one day where the previous day left off. "Gap Theory" has a special place in technical analysis. The theory states that gaps must always be filled - eventually; and, gaps may indicate reversion or retracement zones. This week's break-out was fuelled by a huge rally in the banks which had been languishing. MVB (Bank ETF) was up +13.4% this week. It had a dose of reality therapy on Friday when it fell -3.96%. American banks fell overnight on Friday so we will probably see more profit taking in our banks on Monday - and affect our overall XJO position.Only two sectors above their 200-Day MAs are: XMJ, XIJ. Look for strong stocks in those sectors.XHJ had been above the 200-Day MA but broke below it on Friday. XHJ is in a clear down trend.Sectors above their respective Super Trend lines: XUJ, XMJ, XDJ, XIJ, XTJ, XEJ, XNJ, XXJ, XPJ. That puts all those sectors into medium-term up-trends. Buy the dips.

On the above chart, we can see the massive gap around $56.40-$58.10 (round numbers). That's a gap of around 3%. That represents massive resistance. Above that lies the 200-Day MA currently at about $58.90. I'm looking at those numbers as possible levels for STW (and corresponding levels in the XJO) to reach on this rally and then pull-back.

Only two sectors are above their 200-Day MAs are: XMJ, XIJ. Look for strong stocks in those sectors.

XHJ had been above the 200-Day MA but broke below it on Friday. XHJ is in a clear down trend.

Sectors above their respective Super Trend lines: XUJ, XMJ, XDJ, XIJ, XTJ, XEJ, XNJ, XXJ, XPJ. That puts all those sectors into medium-term up-trends. Buy the dips.

Sectors below their respective Super Trend lines: XHJ, XSJ.

Internal strength/weakness this week, suggests the market is overbought and ready for a pull-back. But long-term is promising with the number of ASX100 stocks above the 200-DMA finally rising above 20%.


% of ASX100 stocks above the 50-DMA and 10-DMA have risen into the overbought level of 80%. So we can expect some pull-back. So long as it is not catastrophic, this should be an opportunity to buy into this rally.

Large Cap Stocks with low volatility:

Only two stocks have +ve Cumulative Momentum: APA and WES. I listed APA as a possible last week. It is currently in a trading range. It becomes a "buy" if it breaks upwards from that trading range.

WES broke above its 200-Day MA this week but fell back to support on Friday. If it bounces here it should become a "buy".

ETFs.

Five out of eight ETFs are showing +ve Cumulative Momentum. The three strongest are Gold, VSO (Small Ordinaries) and OZR (Resources).

Gold is in a trading range. You could look to trade the range - but probably best to wait for a break of overhead resistance.

VSO is in a strong up-trend but now testing its 200-Day MA. Buy on a break above the 200-Day MA.

OZR

OZR (Resources), like VSO, is consolidating below its 200-Day MA. Buy on a break above the 200-Day MA.

The violence that is erupting across the U.S. might result in a pull-back in the stock market. Watch for further developments.