Smorgasbord. Weekly Report for the week ending 13/10/17 Executive Takeaway. Our range-bound market broke to the upside this week. The break was broad-based with all Sectors returning positive results this week. Look for more upside in the near future. If this is a false break (I don’t think it is) then Critical Support will be broken clearly to the downside.
XSO (Small Ordinaries) is strong on all time-frames and set a new One-Year high this week. Look to small mining companies for trading opportunities.
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:
The three-day bullish pattern at the end of the previous week followed through strongly this week. Thursday and Friday closed above the old Critical Resistance level which now becomes Critical Support. CCI and Stochastic are both into overbought territory. RSI still hasn’t reached that level. Any pull-back is likely to be bought.
XJO Weekly:
XJO was up +1.81%. This chart shows how important this week’s breakout has been. It’s the highest weekly close since the week beginning 8 May. Expect more upside.
XJO Monthly:
XJO was down in September -0.58%. After the second week of October it is up +2.33%. It’s too early to make any decisions on the basis of this chart.
Indicators have turned up. RSI has broken above its 5 Month MA. That’s a positive.
If XJO can maintain this level, then the downtrend has been broken.
MULTIPLE TIME FRAME TRADING TRENDS.
The following matrix is based on concepts borrowed from Chande Tushe 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.
Column 1
Column 2
Column 3
Column 4
Column 5
0
Index
Short Term
Medium Term
Intermediate Term
Long Term
1
XJO
Long
Flat
Flat
Short
2
XTL
Long
Flat
Short
Short
3
XMD
Long
Flat
Short
Flat
4
XSO
Long
Long
Long
Long
5
6
XMJ
Flat
Flat
Long
Long
7
XEJ
Flat
Long
Long
Flat
8
XXJ
Long
Flat
Flat
Short
9
XNJ
Long
Flat
Flat
Long
10
XDJ
Long
Flat
Short
Flat
11
XHJ
Long
Long
Flat
Flat
12
XPJ
Flat
Flat
Short
Short
13
XUJ
Flat
Short
Short
Short
14
XSJ
Long
Flat
Flat
Long
15
XTJ
Short
Short
Short
Short
16
XIJ
Long
Flat
Long
Long
17
XGD
Flat
Flat
Long
Long
All four major market indices have a “long” rating in the Short Term. In a strong cyclical bull market, all four major market indices would be “long” in all four time frames. We’re clearly some time away from that condition, so caution is still warranted.
XSO (Small Ordinaries) is “long” on all time frames. That’s the area of the market to be in.
Six out of eleven S&P Sectors have “long” ratings in the Short Term time frame.
Avoid any sectors that are “short” in all time frames, i.e., Telecoms. Utilities improved a little this week. In the previous week it was “short” in all time frames. This week the short term has changed from “short” to “flat”, i.e., to “no position”.
INTERNALS – AUSTRALIAN MARKET.
The following is a graph of the Relative Strength of the various Sectors of our market over the past 12 Weeks:
This graph is a intermediate-term trend indicator. The strongest sectors are XMJ (Materials) up +6.8% and Energy (XEJ) up 6.5%. XMJ has strengthened this week. XGD is an industry group, a sub-set of XMJ. (I include that as a lot of traders like to play in that area, and is often a good safe haven if we get a bear market.) Eight out of eleven sectors are above the zero line. The previous week only four were above the zero line.
Eight out of eleven sectors are above the zero line. The previous week only four were above the zero line.
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 eight Sectors above their 200-Day Moving Averages: Industrials, Materials, Financials x-Prop, Health, Info.Tech., Consumer Staples, Consumer Discretionary and Energy. Three Sectors are below their 200-Day MAs: Utilities, Property and 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 42% to 80%. 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 moderately. Last week it was at 56%, it rose to 62% this week.
ASX100 stocks above the 50-Day MA also rose strongly this week. It is up from 39% to 77%.
This is the first week since early April that the Stocks +ve on the Directional Movement Indicator were above the 200-DMA. That’s a bullish move.Internal indicators improved a little this week but not strong enough to indicate a trend change. Another poor week next week would throw these generally into the bear category.
What a difference a week can make! Internal indicators improved significantly this week and indicate a trend change at least in the short term and medium term. Another poor week next week would throw these generally into the bear category.
% 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 this week’s strong break-out.
SECTOR CHARTS (Daily)
XMJ (Materials)
XMJ is the best performing sector on a 3-Month basis. It was flat this week +0.06%
XMJ has broken its downtrend. Indicators have turned up. The chart is in “no-man’s land” on the narrow (25, 0.5) Bollinger Bands. The short-term is positive but until it clears no-man’s land, it is wise to be cautious. It seems likely to break upwards in the next week which will give it a “long” rating on the Short-Term Time Scale.
The strongest stock is a non-mining stock CSR, MOM Rating +0.64. That’s not especially strong and it pulled back this week -0.64%. The strongest miner is AWC, MOM Rating +0.38. I’d like to see the miners improve before opting into those stocks.
XEJ (Energy):
XEJ was up this week, +1.08%. That’s a good result but XEJ underperformed the broad market index (XJO). XEJ is in a trading range and probably headed back to the top of the range.
Santos is currently the strongest stock, MOM Rating +0.87. It’s worth a look.
XUJ (Utilities)
XUJ was up strongly this week +3.46%.
XUJ is in a long-term down trend. We’ve seen these good weekly counter-trend rallies before. We need to see more improvement before considering XUJ.
Consumer Discretionary (XDJ)
XDJ had a super week +4.38% and broke above two important resistance levels.
XDJ had been in a downtrend since late June. That seems to have ended.
Where’s the strength? Much of the improvement in XDJ can be attributed to DMP, up this week +8.59%. MOM Rating +0.72, but remains below its 200-Day MA, so be cautious.
REA Group was up +4.51%. Flight Centre was up +4.35%. JBH +3.75%. Harvey Norman +3.63%. Star Entertainment +3.52%.
Telecomms. (XTJ)
XTJ is a basket case. It’s difficult to comprehend that in a developed nation such as Australia we have an essential infrastructure industry like Telecomms doing so badly.
It was up this week +2.3% but in a long-term downtrend. Avoid.
Health (XHJ)
XHJ has broken to the upside from a solid base. More upside seems likely.
The big two in the Health Sector are CSL and Cochlear (COH). They are affected adversely by rises in the Ozzie Dollar. The recent falls in the Ozzie Dollar have helped those two stocks. Currency effects aren’t, of course, the only factor impacting these stocks, but all things being equal they are an important factor.
Ansell (ANN) is the strongest momentum stock, MOM Rating +0.79; up this week +6.06%. Cochlear is the second strongest momentum stock (MOM +0.58). It is worth a look
Consumer Staples (XSJ)
XSJ was up strongly this week +2.87%. It is now in a short-term uptrend.
The strongest stock is Treasury Wines. It had been in a short-term downtrend from mid-September. This week it turned up again so the pull-back could be over.
WOW and WES are the two biggest retailers in Australia. I’m not keen on either from a technical perspective. The differential between WES and WOW favours WES, and improved further this week in favour of WES.
Wesfarmers has a dividend, fully franked, of 5.4%. Return on Equity is 12.3% which has been steadily improving since 2008 when it was 5.4%.
Industrials (XNJ)
XNJ up strongly this week, +3.09%. It also broke above near-term resistance.
Qantas is the strongest stock in the Sector with a MOM Rating of 0.66. It hit another one-year high this week, so it is worth considering. Cimic (MOM Rating +0.55) and Aristocrat (MOM +0.52) are also worth considering.
Financials X-Property (XXJ)
XXJ is the largest sector in the XJO. XXJ up this week +1.73%. It has now broken above the 200-Day MA and major horizontal resistance and has appeal.
The strongest stocks are Medibank Private (MOM +0.48) and BTT (MOM +0.44). Neither is especially strong. Better prospects can be found elsewhere. Note that neither is a bank. The banks still don’t appeal. The best are MQG and NAB.
Property (XPJ)
XPJ has been one of the worst performing Sectors. It was up this week +1.13% but underperformed the broad market index (XJO).
It remains in a trading range and below its 200-Day MA. I’d like to see more improvement before considering this sector.
The strongest stock and only one worth considering is LLC with a MOM Rating +0.61. It’s worth a thought, but I wouldn’t be too keen on any of the others.
Gold Mining (XGD)
XGD was up this week +2.54%. It’s back above its 200-Day. The past three days it has been in consolidation. A break above horizontal resistance and the 50-Day MA would improve its chances.
XGD has been tracking the Gold Price since early September. On Friday in America, GLD rose above its 50-Day MA – so there’s a good chance we’ll see a positive move in XGD on Monday.
Summing Up:
The frustrating sideways trend that the Australian market has been in for some months seems to have ended. XJO up this week +1.81%. That’s a strong move breaking upwards from the long-term base that has formed. Rarely does such a move prove to be a false break. But – you never know for sure except in hindsight.
The upside break was broad-based. All 11 Sectors were up, and the Advance/Decline Stats were positive.
The four major market indices (XJO, XTL, XMD, XSO) are all now in short-term uptrends. XSO (Small Ordinaries) is long on all four time frames. That’s the place where traders are making plenty of money.
Most of the strongest stocks this week were coming off low bases.
Stocks with MOM Ratings >0.6 are: DMP (0.72), ANN (0.79), LLC (0.61), CSR (0.64), QAN (0.66) and STO (0.87). That’s a fairly small group and the first time that I can remember that no stock had a MOM >1. This suggests that we’re seeing a rotation out of the previous strongest sectors into previously weaker sectors.
(20min delay)