Weekly Wrap. Week ended 12/7/24. New record for XJO this week.In...

Weekly Wrap. Week ended 12/7/24. New record for XJO this week.

In last week's Weekly Wrap, I issued a cautionary note regarding Big Tech stocks in the U.S. That was a escient call - but I didn't expect the follow-on consequenes. More on the consequences later. First, a look at U.S. Tech.

QQQ, ETF for the Nasdaq

Nasdaq (QQQ) was up more than +20% from mid-April. MACD Histogram was showing a double divergence. I noted last week: That's almost certainly a sign that Nasdq is going to fall. And it did fall ... on Thuresday - more than 2%. That looks like the end of this big bull rally - at least in the short term.

There's still plenty of support below the current level. QQQs finished at 491 on Thursday. Friday saw the usual counter-trend move but that is all it will probably be until another move down. The congestion zone around 475-482 looks a likely short-term target.

Unexpected Consequences: U.S. Small Caps

On Thursday, while the Nasdaq fell heavily, Small Caps (IWM above) did a sky-rocket, up more than 4%. Whooshka.

That action was also seen in mid-cap stocks and some industrials. Dow Jones, for example, set a new intra-day high (but not a closing high) on Thursday.

The catalyst for the rather extreme actions on Thursday was a report that showed the CPI fell -0.1%, which means, of course, a probable easing of interest rates in the near future.

So - investors piled into small caps, mid-caps and some industrial stocks.

Where did the money come from for all that buying? Well, investors sold Tech stocks and bought the others. Doesn't that mean, therefore, that investors are tapped out? There can't be a lot of money sitting on the sidelines if big Tech is sold off to buy the others?

The question then is: How can the market keep going up, if there's no new money coming in to push the market higher?

I still have a bearish bias on the American market - which is likely to spill over to Australia.

XJO

IOZ Chart - ETF for the XJO

On Friday, our market, in reaction to Thursday's action in the U.S., rose to a new record high on heavy volume.

Force Index, which is based on price and volume, spiked up to about the same level seen back in mid-May.

A spike up in the Force Index is usually followed by a fall in the instrument, in this case, STW, a tracking ETF for the XJO.

We're only mid-way through July which tends to be bullish for the Australian market and the U.S. So, they might still struggle a little higher, but I can't see much in it.

Sector performance this week.

ASX Sector Performance.

XJO was up strongly this week +1.75%.

Only three sectors were down this week. Materials -0.57%, Energy -0.4% and Utilities -0.66%. Movement in Utilities is often linked to movements in Energy.

The best performing sectors were Discretionary +3.81%, Property +3.27% and Teleommunications +2.94%. Discretionary and Property both surged on Friday after the favourable print for interest rates on the CPI. I'd ask the question: Why does a possible fall in U.S. interest rates prod a positive move in XDJ and XPJ when many pundits in Australia are predicting our interest rates will go up? Doesn't make sense to me. But then, I'm just a humble retail trader.

(Gold Miners +7.09% is on the chart above but is not a market Sector, it is an industry group and part of the Materials Sector.)

Long Term Investor Index for the ASX.

My long term Investor Index is based on New Highs minus New Lows cumulative. This is something for long-term investors. While NH-NL Cumulative remains above its 10-day MA, that's a message for the long-term investor to hold.

NH-NL Cum remains above its 10-Day MA - that's a positive for the long-term investor with a broadly based portfolio.

NJ-NL Cumulative remains bullish - long-term investors can rest easy.

Australian VIX

Oz Vix has been in steady decline until just over two weeks ago. hmmmm. Another question arises, If the market has taken a bullish turn, why has Vix (the Fear Index) gone up? Shouldn't it continue to fall?

Ours not to reason why - ours but to do and die. (Adapted from Lord Tennyson's Charge of the Light Brigade.)

Conclusion.

The Australian surged higher this week largely on the back of a buoyant American market.

This week my thinking has been afflicted by a big dose of the logical heebie jeebies. I'm don't go along with the consensus that this market will stay bullish.

If I look just at the charts and my NH-NL Cumulative data, I have to say: Stay with the trend.

But I have a red devil on my left shoulder saying, Don't believe it.

Take care