Executive Takeaway. The XJO broke upwards this week from the...

Executive Takeaway.
The XJO broke upwards this week from the previous week’s congestion zone. Watch for some weakness in the coming week as much of our market is now overbought. Any pull-back should be seen as a buying opportunity.

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 this week resumed its uptrend after a week on congestion land. Indices are showing negative divergences which means that the next downside move may not be far away. RSI remains overbought – that’s what RSI does in strong markets.

XJO Weekly:



XJO was up this week +0.96%. The Index closed at 5959.5. Major resistance from the highs of April 2015 lies at 5974.9. That level is very strong, so if we hit that our market might struggle. 20 points to go.

CCI, CMO and short-term Stochastic are all overbought. RSI is nearing that level. So the Weekly and Daily charts are both getting into 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 +0.86%. It’s too early to make any judgements about November but it’s good to see the momentum from October leading into November.

I’ve marked the times we’ve hit overhead resistance. A break above that and we’ve probably got blue sky until we hit the all-time high from 2007.

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 five time frames for the four Indices would indicate a strong cyclical bull market.

We can see from this matrix where the weaknesses are in our market. Twenty Leaders (XTL), the blue-chip end of the market, remains “Short” in the Long Term. That’s affected the XJO which is “Flat” in the Long Term. The Mid-Caps (XMD) and Small Ordinaries (XSO) are both rated “Long” in the Long Term. That’s where the strength of our market lies. The technical picture is very bullish.

In the Sectors, Materials, Energy, Health, Industrials and Consumer Staples are “long” in all time frames. Look for strong stocks in those sectors.

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6
0	Index	V.Short Term	Short Term	Medium Term	Intermediate Term	Long Term
1	XJO	long	Long	Long	Long	Flat
2	XTL	Long	Long	Long	Long	Short
3	XMD	Long	Long	Long	Long	Long
4	XSO	Long	Long	Long	Long	Long
5	Sectors
6	XMJ	Long	Long	Long	Long	Long
7	XEJ	Long	Long	Long	Long	Long
8	XXJ	Short	Long	Long	Long	Flat
9	XNJ	Long	Long	Long	Long	Long
10	XDJ	Flat	Long	Long	Long	Flat
11	XHJ	Long	Long	Long	Long	Long
12	XPJ	Long	Long	Long	Flat	Short
13	XUJ	Flat	Long	Long	Flat	Short
14	XSJ	Long	Long	Long	Long	Long
15	XTJ	Flat	Long	Flat	Short	Short
16	XIJ	Flat	Long	Long	Long	Long
17	XGD	Long	Long	Flat	Flat	Flat

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.

This chart provides confirmation from a different perspective of the Trend Matrix. The strongest sectors are Energy (XEJ), Information Technology (XIJ), Materials (XMJ), Consumer Staples, Industrials and Health (XHJ).

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 marginally this week up from 76% to 77%. 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 fell marginally. Last week it was at 73%, it fell to 72% this week. Above 80% is considered overbought on this indicator.

ASX100 stocks above the 50-Day MA also fell from 76% to 81%.

This is a picture of a strong market – but not too strong.



The longer-term Index (stocks above the 200-Day MA) is still well below the overbought level above 80. That suggests that any pullback will be bought.

% 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 up this week +2.44%



The Index has broken above strong overhead resistance. Friday’s candle is completely outside the channel I’ve drawn on the chart. Expect a short-term pull-back to the middle of the channel, or, perhaps a couple of days consolidation.

The strongest stocks are BSL (Mom Rating 0.7398) and S32 (Mom Rating 0.9252). The weakest stocks are Amcor and FMG. Amcor reported on Wednesday and the market didn’t like it. Amcor down -6.46 for the week and is now below its 200-Day MA.

XEJ (Energy):

XEJ was up this week, +4.53%.

XEJ has been very strong recently. With an RSI at >83, one has to wonder how much more upside is in this rally before we get something of a pull-back or, at least, a consolidation.

Santos is currently the strongest stock, Mom Rating +0.87. Much of the strength in XEJ has come from its largest stock, WPL which has had a great run recently coming off a low base. It has risen 6.57% in the past two weeks. Look to enter after a pull-back.

XUJ (Utilities)

XUJ has broken above a major horizontal resistance line, but not very convincingly. It might be OK. A break back below that level would be negative.



The strongest stock is AGL (MOM +0.2). That’s not especially strong – there are better options elsewhere.

Consumer Discretionary (XDJ)

XDJ was up marginally this week +0.18%. It is another sector playing with major horizontal resistance. If it can break above that, it should see further upside.



FXJ (Fairfax) is the strongest stock. FXJ up +4.74% this week. Nothing else much appeals.
The two big appliance retails (HVN and JBH) are exceptionally weak. Avoid.

Telecomms. (XTJ)



XTJ is a basket case. It was down this week -0.51%.

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 1.2908) but it’s coming off a very low base and remains below its 200-Day MA. We often see strong rallies in stocks in bear markets. Be cautious if you decide to join the bottom feeders.

TPM has also been attracting some attention, up this week +6.51%. The same cautions apply to this as to Vocus.

Health (XHJ)



XHJ up this week +0.63%. Indicators are rolling over and consolidation or a pull-back seems likely. BTD.
The big two in the Health Sector are CSL and Cochlear (COH). COH (MOM +0.4784) and this week reached another all-time high. With a Weekly RSI at 76.8. COH seems likely to have a rest in the near future.

The stock with the strongest Mom Rating (0.558) is Healthscope. It remains, however, below its 200-Day MA. Careful.

Consumer Staples (XSJ)



XSJ was up this week +1.84%.

Woolworths (WOW) reported this week and ran up +3.82%. It remains, however, in a trading range. It needs to break out of that to attract on-going attention.

The strength in Consumer Staples is coming from small-cap stocks, which I don’t cover in this weekly report.
WOW and WES are the two biggest retailers in Australia. The differential between WES and WOW now favours WOW but there’s not much in it.

Industrials (XNJ)


XNJ up this week, +2.87%. It has broken above horizontal resistance. That’s a positive.

CIMIC (CIM) is the strongest stock (MOM Rating +0.9922). 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.

Aristocrat Leisure (ALL) is the next strongest stock and is worth a look.

Financials X-Property (XXJ)

XXJ is the largest sector in the XJO. XXJ is in a very short-term downtrend, down -0.29% this week.



NAB reported this week and the market didn’t like it. NAB down -2.58% for the week. That followed on from ANZ’s negative report the previous week. The banks can’t take a trick. Even the second tier banks are getting hit, BEN down -7.41% this week.

XXJ was one of only two sectors down this week.

MQG is the exception – but it’s a “different” kind of bank from most of the others. Its MOM Rating is relatively good at 0.5816. MQG up +1.29% this week.

Property (XPJ)

XPJ up +0.56% this week.



XPJ is one of the less well-performing Sectors. On the positive side it has broken above its 200-Day MA. But there are better options around

Gold Mining (XGD)



XGD was up this week +3.86%. XGD has broken above horizontal resistance this week (like several other Sectors) and more upside seems likely. 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.

Reporting season is upon us and that brings plenty of wild cards into play. Pressure has continued on the big banks as a result of reporting season. The fact that our market has continued to advance despite a weak banking sector is significant.

Continue to look for opportunities in the strongest sectors.

Significant this week was the number of sectors breaking above horizontal resistance. Normally, a test of horizontal resistance as support follows such events. Given the overbought nature of much of our market, a pull-back seems likely, but nothing too dramatic should occur.