XJO 0.27% 5,835.1 s&p/asx 200

snippets from my weekend report

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    Hi Folks,

    Following is the usual weekly Snippets I must say I've been more than pleasantly surprised by the positive response the Snippets have been receiving. Thanks to all those who have given it a thumbs up and made positive responses and questions.

    MARKET SUMMARY

    The All Ordinaries (XAO) had a poor week this week, down -4.1%. The only S&P Index on the plus side this week was Health, up +2.2%. The biggest loser amongst the S&P Indices was the Materials Index, down -9.2%. Those two figures should be ringing alarm bells. Health is a major defensive sector, Materials is a major cyclical sector. But – one week does not make a trend change. More on this in the General Observations section.

    Amongst the sub-sectors and other Indices followed, Small Ordinaries (-6.1%), Property (-5.8%) and Energy (-5.2%) were big losers. Once again this should be ringing alarm bells. Small Ordinaries usually shows relative strength in a bull market, and weakness in a bear market. Energy, like Materials, is a major cyclical sector. Relative weakness in the Small Ordinaries, Materials and Energy does not bode well for the market.

    The XAO on a monthly basis (20 Trading Days) was up +2.4%. The biggest winner for the month was the Property Sector (+9.7%) and the Small Ordinaries (+4.6%). The turnaround (one week compared to one month) in these two indices is remarkable. Small Ordinaries represents the speculative end of the market and is now doing poorly – the speckies are selling out. The Property Index has been the worst performer in the market since the Bear began. The past month or so saw some strong rises which now appear to be reversing.

    The past two weeks I’ve said: It seems that the Materials Sector . . . is now the main factor keeping this market up. That prop is falling.

    ......

    GENERAL OBSERVATIONS

    1. Considerable technical damage was inflicted on the market this week. But it was not terminal. No doubt the bulls would say, like the Black Knight, It’s just a flesh wound. Two significant supports, however, were broken in the past week.

    o On a close basis, the XAO finished below the recent low in early June. (This was also the high back in early May.)
    o The up trend line from early March has been broken to the down side.

    2. The 34-Day Moving Average provided support during the sideways consolidation back in May. That continues to be unbroken and providing support at the current level. A clear break below this MA may prove decisive in a move down to the 3700 area on the XAO.

    3. A break below 3700 would suggest a further move down to the 3500 area.

    4. A break below 3700 would suggest a test of the March lows around 3100.

    5. A break upwards above the 3930 area would suggest a resumption of the bull rally.

    ......

    Let’s look at some technicals:

    o Last Hour Close Below 5 hour Moving Average – Very Short Term Positive

    o New 3 Day Low on Thursday – Short Term Negative

    o Last Price Below 20 Day Moving Average – Medium Term Negative

    o New 3 Week High, Week Ending June 12th – Medium Term Positive

    o New 3 Month High in June Week – Long Term Positive

    o Weekly Bearish Engulfing Candle week ending June 19th - Short Term Negative

    o XAO/XJO in the No Man’s Land between One Standard Deviation above the 50-Day Average and the 50-Day Moving Average. Neutral.

    Conclusion: This suggests that XAO/XJO is in at least a counter-trend correction which may turn into a major trend reversal.

    ......

    I want now to look at some very long term and somewhat more speculative considerations of the market. First, there have been two major cascading waterfalls or long steep downwards breaks since the bear market began. The first began in late November, early December 2007. The second began in late August, early September. These were approximately nine months apart. (A comparison with the human gestation period is inevitable.)

    At the same times the Bollinger Band widths were at multi-month lows of less than 500 points (using 2 STDs and a 50-Day Moving Average as the centre line).

    It is now about nine months since the last such instance. Once again the Bollinger Bands are at multi-month lows of less than 500 points (using 2 STDs and a 50-Day Moving Average as the centre line).

    Now – narrowing of Bollinger Bands is not a predictor of direction – only of explosive moves. So we can expect a large move in the major market indices in the very near future. Whether that is going to be up or down is still to be decided. Given the recent weakness and the break of significant support, the probabilities lie to the down side. Seasonality also suggests a weak market. The weakening of the cyclical sectors (Metals and Energy) is not supportive of an upwards move at this stage.

    A decisive break below the 34-Day moving average should confirm a downwards direction. A break above the 3930 area on the XAO should confirm an upwards direction.

    The next week or two should be interesting.

    (In the past couple of weeks, I have also discussed the bearish implications of various negative divergences on Indicators, the AUD/USD, and the BDI. I won’t be discussing those once again. Nothing has changed in relation to those discussions.)

    ......

    INDICATORS

    The All Ordinaries Index (XAO):

    Long Term (Monthly):
    MACD: Negative, histogram is rising, Positive
    RSI: 34.1 and rising – above the downtrend line from Oct. 07. Positive
    Slow Stochastic: 86.1. Overbought.
    DMI: negative.
    Trend: Down

    Medium Term (Weekly):
    MACD: Positive. Histogram – heading down – Negative.
    RSI: 53.3. Positive
    Slow Stochastic: 75.9. Negative cross-over of signal line appears imminent.
    DMI: Positive.
    Trend: Up

    Short Term (Daily):
    MACD: Negative.
    RSI: 50.6. Positive.
    Slow Stochastic: 12. Oversold.
    DMI: Positive. (Just)
    Trend: Sideways.

    The Slow Stochastics suggest a short term bounce or sideways consolidation is probable. Long term, the trend is still negative.

    ......

    50 LEADERS

    No. Of Stocks above 50-Day SMA: 35 (70%).
    No. Of Stocks above 150-Day SMA: 25 (50%).

    The number of stocks above the 50-Day SMA is dropping down from a high overbought level last week of 88% to 70%.

    Twent-five stocks (50%) were above the 150-Day SMA. This has dropped from a bullish 66% reading last week to a neutral level.

    No. Of Stocks above 10-Day SMA: 16 (32%)

    This has dropped considerably from last week but still well above an oversold level suggesting that there is further room for movement lower.

    I’ve also done some additional figuring with the ADX. It is usually presumed that a stock is not trending if the ADX is below both the DMI+ and the DMI-. Looking at these figures has shown some dramatic changes this week. Last week, twenty-three (46%) of the 50 Leaders were in the non-trending category. This week, thirty six stocks (72%) were in the non-trending category. Last week trending stocks showed a bullish picture, with 24 trending positively and only three trending negatively. This week, only ten (20%) stocks are trending positively while four (8%) are trending negatively. (These are very crude measures and shouldn’t be applied to individual stocks, but give a reasonable picture of the health of the market as a whole.) Medium term, these figures are still tilted to the bullish side, but the slide lower is disturbing.

    CONCLUSIONS

    The Australian market has pulled back this week in a counter-trend correction. Whether that just represents a further consolidation before the next move up, or something more serious is still to be seen. This correction has eased off some of the previously over-bought readings of the market. We wait for the market to tell us which will be the medium term trend. Up – above 3930. Down – below the 34-Day MA.

    Cheers
    Red












 
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