Executive Takeaway. The XJO built on its uptrend this week.
Dark clouds are gathering, however, for our market. VIX has moved sharply upwards. The XJO is overbought on both its weekly and daily charts. The best performing sectors this week were XUJ and XPJ, both defensives and bond proxies.
Caution is required.
CONTENTS
XJO Charts, Daily, Weekly, Monthly.
Multiple Time Frame Trading Trends
Internals – Australian Market.
Best Sectors.
Summing Up.
XJO Charts, Daily, Weekly, Monthly
XJO Daily:
XJO continued its uptrend this week. It is "long" on all time frames.
RSI (75.3) is overbought. Above 70 is overbought.
MACD Histogram is showing a clear negative divergence from the Index. That's bearish Bollinger Bands on the short-term Stochastic have squeezed together suggesting we'll see a big move in the near future. These three indicators taken together suggest we'll see a downside move in the near future.
XJO Weekly:
XJO was up this week +1.17%. The Index closed at 6029.4. Major support/resistance from the highs of April 2015 lies at 5974.9. That level is very strong. The fact that the Index has broken above it suggests we have a strong market.
RSI (72.3) is overbought. So the Weekly and Daily charts are both in sync. When both are overbought, a move to the downside often occurs.
XJO Monthly:
October was a good month for XJO +3.9%. November has started well with a move of +2.04%. It's too early to make any judgements about November but it's good to see the momentum from October leading into November. The Index has to finish above support/resistance for us to be confident that we have a major bullish break to the upside. If that break can be maintained, we have blue sky above until we reach the 2007 high.
TREND MATRIX.
The following matrix is based on concepts borrowed from Tushar Chande a well-known American technical analyst. It provides insights into trends in multiple time-frames for major Australian market indices and sectors. It should not be taken as trading advice but provides an overall "map" of what is happening in our market. A "Long" rating across all four time frames for the four Indices would indicate a strong cyclical bull market.
Column 1
Column 2
Column 3
Column 4
Column 5
0
Index
Short Term
Medium Term
Intermediate Term
Long Term
1
XJO
Long
Long
Long
Long
2
XTL
Long
Long
Long
Flat
3
XMD
Long
Long
Long
Long
4
XSO
Long
Long
Long
Long
5
Sectors
6
XMJ
Long
Long
Long
Long
7
XEJ
Long
Long
Long
Long
8
XXJ
Flat
Long
Long
Flat
9
XNJ
Long
Long
Long
Long
10
XDJ
Long
Long
Long
Flat
11
XHJ
Long
Long
Long
Long
12
XPJ
Long
Long
Long
Short
13
XUJ
Long
Long
Long
Short
14
XSJ
Long
Long
Long
Long
15
XTJ
Flat
Flat
Short
Short
16
XIJ
Long
Long
Long
Long
17
XGD
Long
Long
Long
Flat
We can see from this matrix that we've got a strong market. The only weakness lies with the Twenty Leaders (XTL), the blue-chip end of the market, which remains "Flat" in the Long Term. The technical picture is bullish.
In the Sectors, Materials, Energy, Health, Industrials, Information Technology and Consumer Staples are "long" in all time frames. Look for strong stocks in those sectors.
INTERNALS – AUSTRALIAN MARKET.
The following is a graph of the Relative Strength of the various Sectors of our market over the past 12 Weeks:
Ten out of eleven sectors are above the zero line. Telecomms (XTJ) is notable for its extreme weakness. Avoid.
The strongest sectors are Energy (XEJ), Information Technology (XIJ), Materials (XMJ), Health (XHJ), Industrials, Health (XHJ), Utilities (XUJ) and Property (XPJ). XUJ and XPJ are both improving sectors. Both are defensive sectors and bond proxies. So something may be bubbling under the surface of our market when those two are showing improvement.
Look for opportunities in the strongest sectors. Avoid the sectors well below the zero line, e.g., Telecomms. There are always individual exceptions to those rules.
We have ten Sectors above their 200-Day Moving Averages. Only one Sector is below its 200-Day MA: Telecomms. (This is a long-term trend indicator.) Generally, avoid the Sectors below their 200-Day MA.
The number of stocks positive on the Directional Movement Histogram rose this week up from 77% to 81%. It is a shorter term trend indicator and can move more rapidly, week to week, than the long-term indicator (stocks above the 200-Day MA). Stocks above 200-DMA rose this week. Last week it was at 72%, it fell to 78% this week. Above 80% is considered overbought on this indicator. We're getting close to that level.
ASX100 stocks above the 50-Day MA remained at 81%.
This is a picture of a strong market - but not too strong.
The longer term Index (stocks above the 200-Day MA) is close to the overbought level above 80.
% of Stocks above the 200-Day MA has never fallen below 50% in the recent pull-back. That's kept long-term investors in the market and they have now caught the recent strong break-out.
SECTOR CHARTS (Daily)
XMJ (Materials)
XMJ was flat this week +0.05%
The very short-term trend is down. A test of support seems likely. Stocks in this sector warrant some caution.
The strongest stocks are BSL (Mom Rating 0.84) and James Hardie (Mom Rating 0.92).
XEJ (Energy):
XEJ was up this week, +1.45%.
The very short term trend in XEJ has now turned down. All indicators have turned down. With an RSI at >73, it remains overbought. Some more downside seems likely, but could represent a buying opportunity.
Woodside (MOM 0.57) and Origin (MOM 0.58) are currently the strongest stocks, Much of the strength in XEJ has come from its largest stock, Woodside had an explosive move to the upside the previous week. It was up +2.42% but selling was seen in the latter part of the week. The very short-term trend in WPL is now "short". More downside seems likely in Woodside - but that should provide a buying opportunity.
XUJ (Utilities)
XUJ up this week +2.02%. RSI is now ~75 which is overbought. XUJ is a bond proxy and defensive in nature. Its current strength could be a warning about difficulties facing our market. Watch.
The strongest stock is APA (MOM +0.28). That's not especially strong - there are better options elsewhere.
It might depend on your priorities. Utility stocks provide good dividends and provide some protection in a stock market downturn.
Consumer Discretionary (XDJ)
XDJ was up marginally this week +1.16%. The very short-term trend remains up. XDJ crossed above a major resistance level on Monday and continued to gain some ground over the week. It is now mildly overbought. Expect a test of the old resistance level as support.
FXJ (Fairfax) is the strongest stock (MOM 0.65). REA is the next best (MOM 0.54).
The two big appliance retails (HVN and JBH) are exceptionally weak. Avoid.
Telecomms. (XTJ)
XTJ is a basket case. It was down this week -0.57%.
There is evidence, however, that bottom-feeders are nibbling at this sector but it's not Telstra that's attracting them.
Vocus actually has the strongest Momentum Rating in the ASX100 (MOM 1.257) but it's coming off a very low base and remains below its 200-Day MA. It may be forming a base, but that process could go on for some time.
TPM has also been attracting some attention, up this week +7.25% (MOM +0.885). The same cautions apply to this as to Vocus. At this stage, these two stocks are for the traders. Long-term investors might look elsewhere.
Health (XHJ)
XHJ up this week +1.69%. XHJ hit overhead resistance on Thursday and then fell on Friday -0.82%. We might see a bit more downside before another tilt is made at that resistance level.
The big two in the Health Sector are CSL and Cochlear (COH). COH (MOM +0.4124) and this week reached another all-time high. With a Weekly RSI at 79. COH seems likely to have a rest in the near future.
The stock with the strongest Mom Rating (0.4681) is Healthscope. It remains, however, below its 200-Day MA. Careful.
Consumer Staples (XSJ)
XSJ was up this week +1.27%.
Woolworths (WOW) and Wesfarmers (WES) both have negative Momentum ratings - so better options are available unless you're a dividend hunter.
The strength in Consumer Staples is coming from small-cap stocks, which I don't cover in this weekly report. Industrials (XNJ)
XNJ up this week, +1.85%
CIMIC (CIM) is the strongest stock (MOM Rating +0.8741). It reported on Wednesday and didn't disappoint the market. It is currently very overbought on the weekly and daily RSI. It might be best to wait for a pull-back. These happen periodically in CIMIC and provide an opportunity to enter at a more favourable price.
SEK and Aristocrat Leisure (ALL) are the next strongest stocks and worth a look.
Financials X-Property (XXJ)
XXJ is the largest sector in the XJO. XXJ is in a very short-term uptrend, up this week +0.93%.
Westpac and ANZ go ex-dividend on Monday so that will give this index a knock. How those two stocks recover (or not) after the ex-dividend date will be important for this sector.
Janus Henderson (JHG) had a rush on Friday when it was up +3% and gapped well up above a major resistance level. It is the strongest momentum stock in XXJ.
CBA is now the strongest of the four big banks after the market favourably received its trading update. That's in strong contrast to how the market viewed the reports of the other three banks. It seems like the only bank to hold at this stage, if you must hold a bank.
Property (XPJ)
There was no stopping Property this week, up +4.28% and the best-performed sector this week.
This looks good for XPJ but perhaps raises concerns about the overall market.
The strongest stock is Mirvac (MGR) with a MOM of +0.46. Next strongest is Westfield (WFD) which had a spectacular rise this week +8.45%.
The worst now seems to be behind the XPJ, especially the shopping centre stocks (VCX, SCG and WFD).
Gold Mining (XGD)
XGD was up this week +0.86%. A test of resistance ~4900 seems possible. NST is the strongest stock in the ASX100, but there are plenty of small caps for traders to play with.
Summing Up:
This week our market built on the uptrend from early October, up this week +1.17%. XJO is now overbought on both the Weekly and Daily charts so expect a pull-back.
It is significant this week that the two strongest sectors were XUJ (+2.03%) and XPJ (+4.28%). That's good for those two sectors but suggests we're seeing a swing by the "smart money" into defensive, bond proxy sectors. Those usually a sign that all is not well.
Finally, have a look at the VIX (Implied Volatility) chart:
VIX has broken upwards from a tight consolidation zone. Upward movements in VIX suggests downside ahead for stocks.
(20min delay)