CONTENTS 1.Australian Market. Indices Performance Year to date. 2.Australian Market. Indices Performance This Week. 3.Australian Market. XJO – Monthly Chart 4.Australian Market. XJO – Weekly Chart 5.Australian Market. XJO – Daily Chart 6.Australian Market: Valuations 20 Leaders. 7.International Markets: Dow 30 Daily 8.International Markets: US$ Gold Daily 9.International Markets: Gold Weekly 10.International Markets: China Daily 11.International Markets: Copper Weekly 12.International Markets: Japan and U.S. Compared 13.Summary and Conclusion 14.SLF – Daily 15.STW – Daily
AUSTRALIAN MARKET: INDICES PERFORMANCE – YEAR TO DATE
XAO: up marginally this year +0.036%. Six of ten S&P Indices are up.
S&P Indices Performance – best to worst: 1.Info.Tech: +7.65% 2.Utilities. +5.18% 3.Health: +2.32% 4.Industrials: +2.3% 5.Financials: +0.74% 6.Consumer Discretionary.: +0.21% 7.Energy: -0.21% 8.Consumer Staples: -1.75% 9.Materials: -3.46% 10.Telecoms: -4.15%
Other Indices: 1.Property: +2.27% 2.Financials (Ex Property): +0.55% 3.50 Leaders: -0.7% 4.Small Ordinaries: +0.27% 5.Mid-Cap 50: +2.96% 6.Metals and Mining: -4.93% 7.Gold Miners: +25.5%
The broad market index (xao) has basically made no ground since the beginning of the year. The two best performers (ignoring Info.Tech.) are both Defensives – Utilities and Health. The main board showing the SP Indices has remained relatively static. The only change in order was a switching of Financials and Consumer Discretionary (up one place, down one place). After a sizzling performance for most of this quarter, Gold Miners are still the big winners – but now coming back to the pack as mean reversion sets in. See the next chart.
AUSTRALIAN MARKET: INDICES PERFORMANCE – THIS WEEK
XAO: up marginally this week +0.13% after being down heavily the previous week. Five of ten S&P Indices are up.
S&P Indices Performance – best to worst: 1.Info.Tech: +0.95% 2.Financials . +0.78% 3.Industrials: +0.52% 4.Utilities: +0.42% 5.Energy: +0.23% 6.Telecoms: -0.13% 7.Health: -0.2% 8.Consumer Discretionary.: -0.44% 9.Materials: -0.67% 10.Consumer Staples: -1.1%
Other Indices: 1.Property: 0% 2.Financials (Ex Property): +0.55% 3.50 Leaders: +0.19% 4.Small Ordinaries: -0.26% 5.Mid-Cap 50: -0.06% 6.Metals and Mining: -1.1% 7.Gold Miners: -9.54%
Three of the four big banks had solid rises this week. The three big insurers (QBE, Iag and SUN) all had strong rises this week. This gave the Financials a good boost – and kept our market on the positive side. Materials lagged and the Retailers were no help. Gold Mining was the big drag – after weeks of extremely strong rises, it’s finally having its day of reckoning.
AUSTRALIAN MARKET: MONTHLY CHART – XJO
The long term (monthly) chart shows no sign of serious deterioration. With one week to go in this month, the XJO is down -1.23%. By the same token – the chart is not showing any sign of bullish activity. The October, 2013 intra-day value remains the bench mark. It was briefly broken to the upside on 3 March, but the Index has fallen back since then. False breaks are usually indicative of future weakness.
The Index is above the 22-Month Moving Average and above major horizontal support at 4980 (round figures). Those two are now closely aligned – and may provide strong support on any pull-back.
MACD Histogram, RSI and CCI are all showing divergence from the main chart. This means that momentum has slowed.
Seasonally, March tends to be relatively strong. But that strength tends to come in the first half of the month. The second half tends to be weaker. Also, the second half of the month tends to be weaker for Gold, which so far this year has played a small but significant part in keeping the XJO afloat. If the second half of March plays out according to the seasonal pattern, the Ozzie market could be in for a rough time. It’s a mistake, however, to play the game according to past seasonal history. Watch the charts.
It’s clear, however, that the Australian market isn’t, unlike the American market, under the influence of a relentless bull like we experienced in 2002-2007.
AUSTRALIAN MARKET: WEEKLY CHART – XJO
The XJO finished at 5338.1, up this week, +0.16%. This week was Index Options Expiry week, so there were some shenanigans late in the week. This was particularly evident late on Friday. But for those – the market would have been down a little, not up a little. In the wider scheme of things, it doesn’t matter much.
Indicators: 1.MACD Histogram. Marginally below zero. Neutral. 2.MACD. Negative divergence but still above zero. 3. RSI.9 is at 52.1. Positive but flat. 4.CCI.14: +19.8. Turning down from above +100. Negative.
This week was a narrow range, indecisive week. Volume was inflated by Index Options Expiry.
Indicators suggest this could go a lot lower. At this stage, however, the Index has plenty of support below it. We could be going back to the lower edge of the trading range. But, at this stage, indecision is dominant. Wait.
AUSTRALIAN MARKET: DAILY CHART – XJO
The short term trend is down on this chart. Friday’s action recouped a lot of Thursday’s big down day – but I have my doubts about the reliability of that rebound. We’ll see in the next couple of days.
On the positive side, the last two times we’ve seen positive divergences on the CCI, the market has reverted to the upside. In fact, the ensuing rallies have been spectacular. Note, however, those previous positive divergences came after long down trends. This down trend has been of much shorter duration, so any rebound could be limited in scope. Don’t expect those spectacular rallies to be repeated.
The chart has how completed a double top. Double tops are highly reliable. Bet against them at your peril. The chart has also broken below the top of the Santa Rally which ended on 2 January. A break back above that resistance level would probably see a test of recent highs that go back to October, 2013.
AUSTRALIAN MARKET: VALUATIONS – 20 LEADERS
The 20 Leaders are the 20 largest stocks on the Australian stock market and make up almost 50% of the total market. They are often obligatory holdings for many managed funds.
The AEM (Aspect Earnings Model) is an open ended model. A reading of 1 (the mid-line on the chart) is considered “fair value”. Above One is over-valued and below One is under-valued. The theory is that if you buy under-valued stocks they will out-perform the market. If you buy over-valued stocks they will under-perform the market.
By extension, if we take an average of all the stocks we can discover whether or not the market should out-perform or under-perform.
Assessing the universe of all stocks on the market is beyond the resources of this humble blogger. But the 20-Leaders is a reasonable proxy. The correlation between the XTL and the XJO is close to perfect. Where the XTL goes, the XJO goes.
The average AEM for the XTL this week is 1.29, down 10 points from two weeks ago, but well above fair value at 1. Under valued stocks are: ANZ, QBE, Suncorp, Telstra, Wesfarmers and Woolworths. Fair-value stocks are: CBA and Westpac. Overvalued stocks are: AMP, BHP, Brambles, CSL, Macquarie, NAB, Newcrest, ORG, RIO, Santos, Westfield and Woodside. The biggest change this week came in Newcrest. Recently its AEM was 1.44. It is now down to 1.16. Still not into the under-valued range. I think NCM price might have further to fall.
Looking at sectors within the Twenty Leaders throws up an interesting divergence. The Financials ex-Property consists of seven stocks. Three are over-valued (AMP, Macquarie and NAB). Two are fair-valued (CBA and Westpac) and three are undervalued (ANZ, QBE and Suncorp). A nice spread around fair-value. Looking at the Miners/Energy complex, all are over-valued: BHP, Newcrest, Origin Energy, Rio, Santos and Woodside. It’s interesting to note that currently the Financials ex-Property are above the highs of the Santa Rally, while Miners and Energy are both below the highs of the Santa Rally. (Not too much should be made of this – but it is interesting.)
INTERNATIONAL MARKETS: DOW 30 DAILY
Friday was Options Expiry Day in America. There were a lot of confounding factors at work besides OpEx Day.
So – rather than engage in paralysis by analysis – let’s take this chart at face value.
The Dow 30 (unlike the SP500) is still below the 31 December high. It’s now nearly three months without being able to crack higher.
It’s made a lower high on 7 March. Not exactly bullish – but not cut-the-throat data.
Friday the Index had a “shooting star” candle – which indicates that, initially, punters pushed the index higher but selling pressure came in to take it lower. And the Index finished on the negative side.
Such candles are bearish – but need follow-through selling to confirm.
This really needs to break below the pivot low of 14 March to assert a bearish pull-back. That would also take the Index below the 40-Day MA.
First step needed now for a bearish pull-back is the need for a big down day in the next couple of days. A break above near-term resistance would suggest a test of that 31 December high.
I’m neutral at this stage.
INTERNATIONAL MARKETS: US$ GOLD DAILY
US$ Gold was down this week +3.48%%. The candle on the weekly chart (not shown) is a bearish engulfing candle.
Nothing’s ever easy on the markets. Just when you’re sure that a down trend is in place – sure enough you’ll see a rally just to shake your confidence. Of course, if you’re a Gold Bug, you’ll see the rally as confirmation that the PM has resumed it’s up trend.
Daily Gold was just oversold enough on Thursday to suggest we might get a bounce. CCI was down under -100 and RSI was down to nearly 40. Friday we got a bit of a bounce. There’s probably more upside to come. We don’t have an bullish divergences yet on indicators, so I think that any rise will be a “come in sucker” rally.
If my long term analysis is right (see last week’s Report) this is headed much lower. But there will be ups and downs. I’ve sketched out a possible scenario on the accompanying daily chart. A break above the recent high – and all bearish thoughts go out the window.
We can expect to see continued weakness in the Gold Miners Index with continued weakness in the price of US$ Gold. Just remember, not all Gold stocks will necessarily be weak. NST, for example, is performing much better than the POG would suggest. There are probably other examples. DYOR.
INTERNATIONAL MARKETS: CHINA DAILY
Last week I suggested that China could be getting primed for a counter trend rally. Then, whooshka, on Friday the Index shoot up +2.3% , the best one day performance for a couple of months.
HSBC/Markit Manufacturing Index comes out this week-end. The chart suggests that somebody thinks it will be extra special.
But – until the down trend is clearly negated it would be best to consider any rally as a counter-trend rally.
The Chinese Stock Market has been in a secular bear market since 2009. (Make that 2007? The 2009 rally was just a cyclical counter trend rally.)
The Chinese market is now like the Nikkei which topped out in 1989 and has never recovered. Perhaps the same is happening with China.
The Chinese now seem to be engaged in a “beggar-my-neighbour” policy being engaged in by most economies throughout the world (including Australia). They all want a lower exchange rate. They all can’t get what they want. But the Chinese effectively devalued the Yuan this week. No doubt to help their exporters. Their economy could be flagging – the stock market certainly indicates that. Despite dire talk about the dangerous levels of debt in China, the Chinese authorities may be about to unleash some more stimulatory measures. That, plus the currency devaluation, could be behind the sudden surge on the Chinese market on Friday.
INTERNATIONAL MARKETS: COPPER FUTURES
Copper topped in early 2011 and has since been in a major downtrend. There have been plenty of trading opportunities since (I’ve marked some on the chart) but the very long term down trend has been inexorable.
It’s possible that Copper is also gearing up for a counter-trend rally. This week’s candle is a long-legged doji suggesting there has been some buying pressure. CCI is down under -200 which is often enough to spark a rally.
That would place China and Copper in sync. And that’s a fair enough assumption to make.
If the HSBC/Markit release is better than expected, we could just see some spark to the upside. I’d treat it as another trading opportunity, not as an indication that the secular bear market in copper is over.
INTERNATIONAL MARKETS: JAPAN AND U.S. COMPARED
It’s not often I look at such long term charts. Maybe I should. They’re not much good for fine timing – but great for seeing major warning signs of possible dangers.
These are 30 Year Monthly Charts for the Nikkei 225 (Japan) and the Dow Industials (America).
The big bear markets and rallies are clear on the charts.
In the case of Japan, it’s been under the influence of an oblique restraining line since 1991. In America, a similar but shorter restraining line has been a dominant influence since Year 2000.
Japan has been a leading indicator for the tops in the American market in 2000 and 2007. And, now, possibly in 2014. Arguably, America topped before Japan in 2000. Japan topped in March, 2000. America topped in December, 1999. (I still have a clear memory of that – I was in Sydney at the time using an internet café.) Japan, however, went into an immediate sharp decline, while America staggered sideways until its descent started in August, 2001. So the big trouble in America, although not the exact tops, was lead by the Japanese market.
In 2007, Japan topped in June while America hung on until October.
All of the major declines in America and Japan were preceded by negative divergences on the CCI. The same type of divergences are again evident. The Music in Pass-the-Parcel looks like stopping sometime in the next few months. It might already have started in Japan.
SUMMARY & CONCLUSION
Consider the following: China and Copper are in bear markets. U.S. and Japan are in bull markets. Australia is caught in the middle. Pulled down, on one side, by the bearish scenarios in China and Copper, and pulled up on the other side by bullish markets in Japan and America. So what do we do. We sort of muddle through. We’ve had a bull rally – but it’s been eclipsed by strong performances in America and Japan. So … what happens if Japan and America come off the boil? That could be in progress. Japan appears to have topped in December, 2013 – perhaps a leading indicator for the future of the American market?
That push/pull of those international markets is mirrored within the Sectors in our market. The Mining Sector, in particular, despite the surge in the Gold Miners, has been weak this year after looking strong in the last half of 2013. That now looks like a bear market rally.
All of that is taking a very long term view. The pessimism I’m showing may, or may not be borne out.
In the short term, our market is in a down trend. Technically, it looks ready to bounce higher. China had a great day on Friday, Japan had a poor day, and America had a poor Friday session. So, once again, we’re between two opposing forces. China on one side, Japan and America on the other.
In the medium term, Australia is near the top of a trading range in play since July, 2013. I think we can expect a move down to the lower end of the trading range in the next few weeks.
The HSBC/Markit Flash Manufacturing Index should come out today. Analysts surveyed by Bloomberg expect the Index to remain in contractionary territory – but up a little on February. February was 48.5, March expected 48.7. A major deviation from the expected figure could have a major effect on markets, particularly ours. The coming week could depend on that figure.
For daily updates – check http://redbackmarketreport.wordpress.com/
ETF: SLF – WEEKLY
SLF is the tracking stock for the Property Sector.
SLF was up marginally this week, 0.11%. It is now at the lower end of a medium term up trend but still within a long term sideways consolidation. This week’s candle shows some selling pressure (long upper tail).
According to Comsec, SLF Dividend Yield is 5.1%. Dividends are paid quarterly. The most recent Ex-dividend date was 31 December, 2013. Dividend was .1242c per share. That’s better than bank interest – if you can cope with the stock market risk. Long term holders will continue to hold and take the divvies. (Next ex-dividend date is 31 March, 2014, Monday week.)
(SLF is the Exchange Traded Fund which tracks the performance of the Property Sector on the Australian stock market.)
ETF: WEEKLY STW
STW is the tracking stock for the ASX200 (XJO).
This week the ETF was up a little, +0.28%. The Weekly Candle is a narrow range candle on about average volume. Volumes on the broad market indices this past week were affected by Options Expiry. So the trading in STW probably reflects a better view of events this week. MFI is right on its mid-line. This market is in indecision. The coming week should provide some more direction.
According to comsec, Dividend Yield is 3.8%. That lags the dividend on 10-Year Government Bonds.
Dividends are paid half-yearly. The dividend announced on 23 December was124.92 c. That’s the best payout in the past 3 ½ years. Next dividend date is in late June, 2014. The stock is currently priced at $50.29, up 14 cents since last week.
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