Our market is being pushed around by unpredictable events. This week we saw major changes as a result of company reports, economic reports and bellicose geopolitical posturing. The coming week sees some of Australia’s best-known companies report, e.g., JB Hi-Fi, Newcrest Mining, CSL, Woodside, Westfield, Origin Energy, Fairfax Media, Stockland, Telstra, Tatts, QBE, Wesfarmers, Cochlear. This week promises some fireworks. Some will be fizzers, and some sky rockets. Unpredictable. Meanwhile, we’ll have Trump and Kim Jong Un spitting dummies at each other – and, hopefully, nothing more than that.
CONTENTS
XJO Charts, Daily, Weekly, Monthly.
Internals – Australian Market.
Sector Charts.
Summing Up.
XJO Charts, Daily, Weekly, Monthly
XJO Daily:
XJO remains in a sideways trend. Friday’s downdraft (XJO -1.8%) felt bad but we’ve had plenty of similar down days since 6 June without a change in trend. All the Moving Averages on the chart continue to trundle sideways. Friday’s move brought the XJO down to the 200-Day EMA and a little above horizontal support.
Watch for a breakout from the horizontal trading range: 5800 to 5660 (round figures).
The XJO remains above its 200-Day Exponential Moving Average. 200-DEMA corresponds fairly closely with horizontal support, only about 14 points difference. The two close together make for powerful support.
XJO Weekly:
XJO finished down this week, -0.48%. The long-term trend is up, but the Index has been sideways for the past nine weeks. A lot of pent-up energy has been built up during that time. Major horizontal support is clear on the chart. A decisive break lower would be very bearish.
XJO Monthly:
We’re into the second week of August. XJO is down -0.48% so far this month. The most recent monthly candles form a neat symmetrical triangle. A break out of that might be significant.
All indicators are on “sell” signals. That can happen in a sideways market.
The 2-Month MA has broken below the 10-Month MA. That’s been a relatively reliable signal in recent years. Take sell cues from the daily and weekly charts. Watch for a break of horizontal support on those charts.
INTERNALS – AUSTRALIAN MARKET.
This week the XJO was down -0.48%. Looking at the internals, action was poor. Most sectors were down. Only Telecomms +1.43% and Info.Tech. +0.87% had significant rises. Materials +0.11% barely made it on to the positive side. The big winner was XGD (Gold Miners) up +5.9%. Gold Miners benefit from a flight to safety in Gold and Bonds when geo-political events threaten. That’s what happened this week with a ramping up of rhetoric from the leaders in Korea and the U.S. Whether or not this means anything more than hot air is still to be seen. Perhaps, as Shakespeare said: “It is a tale told by an idiot, full of sound and fury, signifying nothing.”
Consumer Discretionary was the worst performing sector -3.17% after poor consumer confidence figures were released this week. Westpac commented: The consumer mood has deteriorated over the last year with August marking the ninth consecutive month where pessimists are outnumbering optimists.We have not seen such a succession of weak reads since 2008. Some of the best-performing stocks recently in our market have been in this sector but they fell this week (e.g., Flight Centre -1.56%, Harvey Norman -4.43%. JB Hi-Fi -3.06%). Utilities, Energy, Health and Property were down about 1% or more. Financials X-Property didn’t fare too badly -0.24%. It was hurt in the melt-down on Friday when it was down -1.3%.
The number of stocks positive on the Directional Movement Histogram rose from 46% to 33%. This needs to get back above 50%. This 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 resumed its downtrend this week. This week it is at 52% – down from 60% the previous week. 50% is the marker between bull and bear markets.
SECTOR CHARTS (Daily)
XMJ (Materials)
XMJ was one of the few positive performers this week, but up only +0.11%
It remains in an uptrend but indicators are on short-term sell signals. So we’ll probably see a move down to the lower edge of the uptrend channel.
Two of the best performers in this sector this week were Gold Miners, NCM +7.42% and NST +4.68%. But the standout was Orora, the spin-off from Amcor. ORA was up +8.36% after reporting good results particularly in the U.S.
BHP, FMG and S32 are the best momentum stocks in the miners. BHP and FMG both lost ground this week, while S32 was up +2.41%. It is now at resistance of a one-year high. If it can break above that it will probably go much higher.
XEJ (Energy):
XEJ was down this week -1.44%
XEJ remains in a sideways trading range. Down this week -1.24%.
Santos is currently the best stock. MOM Rating 0.63. That’s not strong enough to consider. It is also well below its 200-Day MA – another cross against it.
Energy tends to be volatile. Leave this to the traders.
3. XXJ Financials X-Property:
XXJ is in a short-term downtrend, but in the medium-term is trending up. It needs to pull out of the downtrend to maintain its medium-term uptrend. There’s a good chance that it will do that. XXJ is sitting on its 200-Day EMA and just below that is major horizontal support.
IFL, a funds manager, is the strongest stock. MOM Rating 1.22. It was up >9% for the week have reporting good results.
The big banks continue to be hit by “black swans”. Leave them alone until we can see some clear upside
XUJ Utilities
XUJ failed at overhead resistance and is now back testing recent support. We need to see a break above overhead resistance which should be a clear buy signal. Until then, leave alone.
XNJ Industrials
XNJ down this week -0.37%. It was looking good on Monday, but it hit support and fell away. It was affected by the general backwash on Friday down more than -1%. It has a major congestion zone of support just below the current level, so that might hold.
ALQ (MOM Rating 0.73), Downer EDI (0.59) and CIMIC (MOM 0.61) are the strongest stocks.
XSJ Consumer Staples
XSJ down marginally -0.15%.
XSJ remains in a trading range. The longer term trend is down and XSJ is at the top of that down trend, so the best bet is that it will do down. A break-out of the range would prove that thesis wrong.
That odd looking “dragonfly” candlestick on Friday was the result of Woolworths and Wesfarmers opening much lower than the previous day, then rebounding. Woolworths finished up +0.45% on Friday, with Wesfarmers finishing up +0.42%
WOW is the strongest stock (MOM 0.36). Wesfarmers MOM Rating is +0.09. Woolworths is above its 200-Day MA, Wesfarmers is not. If you must have one of the two big retailers, WOW is preferred. I’m not particularly keen on either.
XHJ Health
Health down this week, -1.05%. I had high hopes for Health this week, and it was looking probable on Thursday, but Friday’s toilet flush sent it back to horizontal support. XHJ down -1.27% on Friday.
A break out of the current, small trading range should see a definitive move for XHJ.
XPJ Property
XPJ down this week -0.97%. It remains well below its 200-Day EMA.
XPJ was in a gently rising uptrend. Friday’s action brought that to a shuddering halt. A lot of Real Estate Trusts report in coming week. That might be a catalyst for movement in this sector. I’d wait and see how the reports are received.
XGD Gold Miners
XGD up this week +5.9%. It has benefitted this week from the geo-political heat.
It is now above its 200-Day MA and hitting horizontal resistance. That might give it pause. But I wouldn’t be surprised to see the current momentum push the Index through resistance and go up another 100 points or so.
This is a volatile industry group with a lot of small cap companies. Good traders can make money here, but it’s not for investors – unless they’re convinced we’re entering a secular bear market when Gold tends to outperform.
NCM, NST and EVN were three of the best five performing large cap stocks on Friday. They’re all worth a look.
XDJ – Consumer Discretionary.
XDJ finished down for the week -3.17%. On Friday it broke decisively below a major support level which has survived many attacks going back to mid-April. It now looks like a dead duck to me.
Leave alone until we see signs of definite improvement.
XTJ Telecoms.
Telecomm was one of the few positive performers this week, up +1.43%
It might be forming a base, but forget about XTJ until we see solid improvement. Telstra reports this week on Thursday, 17 August. Many pundits have been predicting that Telstra will cut its dividend, but that is probably built into the price. If there’s a surprise in store for Telstra, it’s more likely to be up than down.
Summing Up:
Not much in our market escaped the toilet flush on Friday when the XJO fell -1.18%. We’ve seen repeated cases of such events since the sideways shuffle started back in early June. I can count eight previous cases where we’ve seen major down days which haven’t altered the sideways trend that the market is in.
Currently the market is in a period where unpredictable events are determing day-to-day movements.
Trading reports, economic reports and geo-political posturing are pushing our market around – with no change in general direction.
We’ve seen this week two outstanding movements (IFL and ORA) on the back of good reports. Some of the Gold stocks have responded positively to the North Korean drama. That has also helped some of the defensives, notably Telecomms and Consumer Staples. Consumer Discretionary finally broke a major support level this weak after another disappointing Consumer Confidence Report came out this week.
If the banks can produce a turn around after being hit with black swan after black swan, we could see a big move to the upside in the near future. It now depends on XXJ which makes up about 40% of the Australian market. Without a solid performance from XXJ it’s difficult for the XJO to make a solid performance, as we saw this week.
The XJO remains in its frustrating sideways consolidation. Until we see a break-out from that, one way or the other, it’s best for long term investors to wait patiently.
(20min delay)