A major change occurred this past week in the structure of the Australian market. Property (XPJ), which had been languishing from mid-Dec. 2017 till late-Apr. 2018, is now showing significant strength. XEJ (Energy), which has been in a strong up-trend since mid-March, has now broken its uptrend. XMJ (Materials), which has been in a strong up-trend since early April, also broken down from its up-trend. Consumer Discretionary (XDJ) broke out to a new one-year high, and is at its highest point since February, 2008. XSJ broke out to a new all-time high and is well above its high before the GFC. Wesfarmers is close to an all-time high which was hit in June 2007.
All this suggests that Resources are coming off the boil, and investors are turning to the domestic market for new upside. The case against Resources is still to be proven, but the case for the domestic market, particularly Property, Staples and Discretionary, sees to have been made.
In this week's Smorgasbord I'll look more closely at those five sectors and also look at two interesting case study stocks.
I'm expecting our market to turn higher this week.
XJO Charts, Daily, Weekly.
Internals – Australian Market.
Five Sector Charts
Two Case Study Stocks
XJO Charts, Daily, Weekly
XJO Daily:
The daily XJO chart short-term trend channel is headed down. The index is now oversold and likely to bounce. The two small doji candle-sticks (Thursday and Friday) coming at support also suggest a bounce here.
The structure of the long-term Stochastic and the short-term Stochastic suggests that any rally is likely to be sold into. The long-term Stochastic (the long-term trend) has turned down, while the short-term Stochastic seems to be bottoming out.
(I've placed two arrows on the chart to show the potential direction in the XJO. Up, then more downside. The arrows are not meant to show the magnitude of any move.)
XJO Weekly:
XJO down -0.9% this week.
The XJO chart clearly hit major resistance a couple of weeks ago, then turned down. Indicators have now rolled over and appear to have further to go. Expect more down side.
INTERNALS – AUSTRALIAN MARKET.
The internals showed significant falls this week.
The ASX200 is well above its 200-Day MA, but the number of stocks in the ASX100 that are still above their 200-Day MA has fall to a bearish reading of 47%. This means that a few large stocks (mainly Resources) remain above their 200-Day MAs which is holding up the ASX200. So breadth is poor.
Percent of ASX100 Stocks positive on the Directional Movement Index turned bearish falling this week from 53.5% to a bearish 46.5%. That's down significantly from 80.8% two weeks ago.
Five out of 11 Sectors were down this week, but that group includes the three most important, XXJ -1.45%, XMJ -2.83%, Energy -4.42%. The two Resources sectors have a habit of falling heavily one week and then rebounding the next week. We'll wait and see what happens with that.
Three sectors recorded positive movements of >2%, Property +2.57%, Utilities +2.15% and Discretionary +2.03%.
Five Sector Charts:
XMJ -2.83% this week.
The Bollinger Band squeeze on the Stochastics played out this week. Indicators have turned down and may be close to a short-term bottom. Any rebound is likely to be sold into.
A negative cross-over of the Directional Movement Index would be bearish. It is close to that level now.
XEJ down -4.42% this week.
The technical picture on XEJ is similar to that of the XMJ. We can see the same Bollinger Band squeeze and the Directional Movement Index is close to a bearish break. RSI(5) is oversold so we could see a rebound soon.The strongest stocks are S32, BSL, BHP and Rio.
Energy had a poor night in New York on Friday, -2.69%. That is likely to impact Australia on Monday and further the bearish sentiment in Energy.
XDJ +2.03% this week.
XDJ broke decisively above resistance this week. That's its highest level since early 2008 We'll have to see if XDJ can now successfully test the old resistance level as support.
The index is now overbought and some potential negative divergences are now setting up, so some sort of pull-back is likely to occur.
XSJ up +0.63% this week.
XSJ in a short-term down-trend from early May, tested the 50-Day MA and then bounced strongly to score a positive finish to the week. Indicators have turned up. Directional Movement Index has returned to the positive side. More upside looks likely.
Both Woolworths and Wesfarmers are faring well. WES is now close to an all-time high. There's not much between WES and WOW looked at from recent performances. Take your pick. Or take both?
XPJ up +2.57% this week.
XPJ broke above the 200-Day MA at the beginning of April. It then tested it (and the 50-Day MA) as support then bounced strongly. The 50-Day MA has now broken above the 200-Day MA, which is another strong sign. The Index is now overbought so we might see some pull-back or consolidation, but, in the medium-term, more upside seems likely.
All large cap stocks in the XPJ are now bullish except for Westfield. So the sector has good internal strength.
Case Studies
Treasury Wines (TWE).
TWE has been one of the stars of the Australian stock market. "Buying the Dip" in TWE has been a lucrative strategy with TWE for a few years now.
Recently, TWE fell heavily after the company reported a problem with clearing stock into the Chinese market. Nobody knew whether it was just a bureaucratic hitch or some pay-back by Chinese authorities for a negative political attitude in Australia towards China.
Here's the chart:
As a result of the Chinese problem, TWE has fallen back to its long-term trend as defined by the 200-Day MA. On Friday it bounced strongly off the 200-Day MA. This looks like a buying opportunity.
Macquarie Atlas Roads (MQA)
MQA had been in a short-term down trend from late April when it failed at major overhead resistance. It came back to successfully test dual support, horizontal and the 50-Day MA. It bounced strongly on Thursday Friday. MFI has turned up above its 5-Day MA, and other indicators have turned up positively. Further upside seems likely, and if it can get above that major resistance level, much more upside looks probable.
(20min delay)