The daily XJO chart has been in a positive uptrend since early April.
It had a strong week this week, up +1.84% against a backdrop of a falling U.S. market (SP500 -0.24%).
XJO is in a short-term up-trend and is well above major Moving Averages (20/50/200-Day MAs). Stay with the trend.
The major horizontal resistance level (blue horizontal line) on the chart looks a likely target.
The RSI(5) was recently at 95.4. That’s very overbought. It fell on Friday to 74.2 so there is some danger of a pull-back or consolidation. We haven’t yet seen characteristic negative divergences which signal the end of a trend, so any pause or pull-back is likely to be bought.
XJO Weekly:
The weekly chart has had five up weeks in a row with a rise of >5%. That’s broken the long-term down-trend from early January.
A break above January’s high would be bullish and bring into sight the all-time high set back in 2007.
The short-term stochastic (14/3/5) has broken above the long-term stochastic (50/10/10) – that’s a further bullish development.
INTERNALS – AUSTRALIAN MARKET.
Measures of internal strength confirm the current bullish state of our market.
Percent of ASX100 Stocks above their 200-Day MA stands at 61%.
Percent of ASX100 Stocks positive on the Directional Movement Index stands at a bullish 86.9%, and Stocks above the 50-Day MA stands at 81.8%. Those figures suggest that our market is overbought, but Stocks-Above-200Day-MA are still moderate. So any pull-back is likely to be bought.
All 11 Sectors were up this week. Best performer was Info.Tech. (XIJ) +4.06%. It was a star performer in 2017 and seems to be coming back into favour. Weakest performer was Energy +0.4%. Even the punch-drunk Financials performed strongly, +2.43% and was the third best performing sector. XXJ may now be recovering from the Royal Commission revelations.
Energy and Health were relatively poor performers. They have been amongst the leaders in the past three months, so we may be seeing switching out of the leaders into the weaker sectors. I’m still not convinced about that – see comments on individual sectors below.
Sector Charts:
XUJ +2.06% this week.
Utilities (XUJ) has been in correction mode since early December last year. The past two weeks have seen good rises, but that came to a halt on Friday after the 200-Day MA was hit on Thursday. That puts a question mark over the current trend. It may be a counter-trend rally. This may now revert back to test the 50-Day MA as support which has been resistance for some months. Wait.
A decisive break above the 200-Day MA would bring this sector back into bullish consideration.
Ausnet is currently the strongest stock.
XMJ +1.24% this week.
XMJ is close to major resistance, and indices are showing clear negative divergences. A hit up against resistance could lead to a pull-back.
The strongest stocks are S32, AWC and ORI. The strongest Gold Miner is EVN
XDJ +1.12% this week.
XDJ has been very strong since early April, but this is setting up for a pull-back. XDJ suffered intra-day selling on Thursday which accelerated into a down-side move on Friday. XDJ down -0.88%.
Negative divergences are showing up on some indicators. That’s not a good sign.
Strongest stock is FXJ. The week before, DMP was the strongest stock. It has been consolidating this week – keep an eye on it – it can run fast, both up and down. Watch for a break from the consolidation.
JBH (JB Hi-Fi) took a big hit on Wednesday down ~10% which put pressure on the index. Avoid it and HVN.
XTJ up +3.07% this week.
So, are we finally seeing rotation into Telecoms or is this just another counter-trend rally?
Technically, this favours the “rotation” side of the equation, especially given the good consolidation which occurred before the current short term rise. But – it is still a long way below the 200-Day MA.
TLS saw some intra-day selling on Friday after it hit horizontal resistance. Wait to see how any pull-back goes.
Trade this with caution. Long term investors should continue to avoid.
XIJ up +4.06% this week.
Last year, Info.Tech. was one of the darlings of the Ozzie market. It had a good rise this week breaking out of a choppy sideways trend. It is now at an all time high. Expect a test of old resistance as support.
XIJ is a small sector and can move swiftly if one of its components has a good move. Wisetech (WTC) did that this week, up +23.92%. It has made a decisive move above its 200-Day MA. Buy the dip.
XEJ up +0.4% this week.
Energy (XEJ) has been in a strong up-trend since mid-March. It is now overbought and setting up for a pull-back. This week it under-performed the XJO by a large margin.
Look to buy the dip. A pull-back to the 20-Day MA, and then a bounce would be a good buying opportunity.
The best bet is Woodside. Avoid Caltex.
XHJ up +0.46% this week.
XHJ (Health) had only a relatively small rise this week. It did little more than consolidate. Negative divergences are setting up, which suggests more consolidation or a pull-back.
Recent rises have been dominated by take-over activity in Healthscope.
CSL and COH are performing satisfactorily but not enough to get excited about.
XSJ
XSJ hit an all-time high this week. That’s bullish. Expect a test of the old resistance level as support. If it bounces off that, expect more upside. XSJ is way above its 2007 high – one of the few sectors to achieve that.
Both Woolworths and Wesfarmers are faring well. Woolworths is preferred.
The strongest stock is Treasury Wines (TWE). TWE is up >450% since early 2014. Any pull-back since then has been bought.
XNJ up +2.04% this week.
XNJ is now overbought and at resistance. Buy the dip.
Strongest stocks continue to be Macquarie Atlas and Aristocrat Leisure.
XXJ up +2.43% this week.
Technically, XXJ is looking good. The “hammer” on 27 April played out well this week. The chart has formed a “double bottom”. Friday’s action looks like a test of the old resistance as support. A bounce here would be bullish.
XXJ remains below its 200-Day MA, so the current move could be a counter-trend rally. Let’s see if this can bounce off horizontal support – and what happens when (if) it gets up to the 200-Day MA.
This week’s action has been an important move. The press continues to issue bad news about the banks and AMP but that hasn’t dampened enthusiasm for Financial stocks (although AMP should be left alone).
XXJ represents >1/3 of the XJO. The weakness in this sector has been a major dampener on our market. With Energy and Materials likely to pull-back soon we need to see further strength in XXJ to maintain upward momentum in the XJO
XPJ up +2.24% this week.
XPJ (Property) broke out of its sideways trend this week. It rose decisively above its 200-Day MA. Buy the dip.
The strongest stock is Goodman (GMG).
XGD up +2.24% this week.
XGD (Gold Mining) broke out of its wide trading range this week. That’s a bullish move. See if we get a successful test now of the old resistance level as support.
Best amongst the large-caps is EVN (Evolution Mining). The Gold Miners Index includes many small gold companies which provide good trading opportunities.
Conclusion
The Australian stock market has had five good weeks and this week performed exceptionally well given a weak U.S. Market and poor press from the Royal Commission.
We may be seeing switching out of strong sectors into weaker sectors such as Financials, Utilities, Telecoms and Property.
Consumer Staples and Info.Tech. are both at multi-year highs which suggests further rises.
Any concerted upside movement will probably depend on XXJ (Financials). It formed a double bottom this week. If it can bounce off support, the worst could be over for XXJ.
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