In America: Nasdaq Composite +1.35%, New York Composite +0.75%. Russell 2000 +1.17%. DJ Industrial +0.12%. SP500 +0.91%. All indices except the Dow Jones Industrial Average were up strongly. IBM which is heavily weighted in the DJIA affected results in that index. We rarely see a major discrepancy between the DJIA and SP500, but it did happen today. DJIA did, however, show good intra-day buying. So all around we had a bullish scenario today. Trin on the Nasdaq was 0.45. That’s very low and looks far too exuberant. The last time we saw a reading like that was on 9 April – and the market fell >2% the next day. Here’s the detailed chart for the SP500: Three days up and getting close to an important S/R level. Apple Inc. reported after-market and shares are currently up about +1.5%. So a bullish breach of that S/R level looks possible. Indicators have plenty of room to move topside. A solid test might occur when the SPX reaches the 20-Day MA. Commodities: CRB Index down -0.55%, dragged down again by the Energy Group. IndustrialMetal Group was also off with Copper down -1.2%. Iron Ore was up +0.6%. It currently appears to be consolidating above the $80 level – it finished at $81.2. GLD +0.68%. U.S.$ -0.35%. Oz Stocks in NY: BHP +0.47%. Rio +0.54%. Westpac +1.42%. ANZ +1.63%. EWA +0.62%. Ozzie Dollar +0.48%. Discounting for the Ozzie Dollar, those results are mixed with the Banks doing well and the Miners so-so. It’s difficult to see how we won’t be up today. That will be six days up in a row. That’s not common. Some of the miners might struggle and we could see some profit taking after an initial surge. Redbacka
XJO up +0.9% on low volume.
The market’s been up five days in a row off very oversold conditions. Momentum indicators have plenty of upside room, but after five days up, it’s probably time for a rest before the next leg up.
Apart from the number of days up (five), there’s not much to be concerned about in today’s action. A/D Ratio was good, AdvVol/DeclinVol was very good.
Defensives were amongst the worst performers today. Suggesting a switch out of the defensives into more cyclical, growth oriented stocks.
I wouldn’t be surprised if we see a couple of slow days now, before the next leg up. Then we might have a serious think about direction.
Australian Market: Sector Relative Strengths.
Australian Market: Sector Analysis
Australian Market. XJO – Monthly Chart
Australian Market. XJO – Weekly Chart
Australian Market. XJO – Daily Chart
Australian Market. XJO – Renko and P&F Charts
American Market: Sector Relative Strengths.
American Market: SP500 Daily.
American Market: SP500 P&F Chart.
World Markets: China and Japan
AUSTRALIAN MARKET:SECTOR RELATIVE STRENGTHS
This week the broad market index (XJO) was up strongly +1.61%. Four out of five days were up.
The chart/table above provides a short/medium term and a long term view of Market Sectors. Relative Strength provides information on how each Sector is travelling in the short to medium term. The Bull/Bear Status provides a longer term view of the Sectors.
The three strongest S&P sectors, as measured by RS (the distance of the stock above/below its 100-Day MA) are: Telecoms (99.4), Health (103.2). Utilities (97.6). Only one sector is above the par line (100%). Once again this week, the top three sectors are defensives.
Sector Structure (based on the overall Bull/Bear Statuses) is now in serious difficulties. If the 50-Day MA is above the 100-Day MA, then the Sector is on Bull Status. And reverse for Bear Status. Six Sectors out of ten are now on Bear Status. The two dominant sectors in our market are on Bear Status – Financials and Materials. Fifty Leaders, Mid-Cap 50 and ASX200 are all now on Bear status. Small Ordinaries is on Bull Status. This is interesting. Small Ordinaries tends to be skewed with a large number of small mining companies. Materials (mainly Miners) is the weakest Sector. So something is out of kilter here. It means that there is a source of incipient strength in the market which isn’t showing up in the usual places. Just maybe, this pull back is not quite as severe as it appears.
Nonetheless, we now have a picture of a bearish, weak market. It is oversold (see later charts) so it can pull up here. But, at the moment, this picture suggests that any rally might be sold into.
AUSTRALIAN MARKET:MONTHLY CHART – XJO
We’re now half way through the month. It’s too early to think about making any judgements. September, however, was an extremely poor month -5.92%. The worst month in over two years. October is down modestly at this stage, -0.4%. The monthly candle is showing buying pressure.
The dominant pattern on the chart is the Rising Wedge. The chart has made a significant break below the support line of the rising wedge. That’s bearish. It’s also broken below the 10-Month MA. The chart has now broken below the 20-Month MA. 20-Month Moving Average sits at 5309.8. XJO currently sits at 5271.7. That’s close. We still need to see how this finishes in October. A monthly close below the 20-Month MA will be another bearish signal.
MACD Histogram is below the zero line. It fell below there in September. That’s a sign to consider defensive action in long-term portfolios. E.g., look to asset allocations. If overweight in stocks, consider shifting a little weight out of stocks and into cash and/or equivalents, e.g., bonds. It’s up to the individual investor’s judgement just what they plan to do.
Other technical indicators are breaking lower.
If this month, the XJO finishes below the 20-Month MA, I think this bull market is over. If the 10MMA breaks below the 20MMA – then we could be looking at another 2008-type scenario. That’s still speculation at this stage. I’m just setting up warning signals.
AUSTRALIAN MARKET:WEEKLY CHART – XJO
The XJO finished the week at 5271.7, up +1.61%. That’s the first significant rise in eight weeks.
MACD Histogram. Below zero. But rising.
MACD. Below zero – Negative.
RSI.9 is at 36.3. Rising from extremely oversold.
CCI.14: -137.7. Negative, but rising.
The chart has now bounced off the 100-Week MA. It remains below the 50-Week MA which has provided support for the market for over two years. The 50-Week MA now coincides with a major horizontal resistance level. Dual resistance is powerful stuff. Not necessarily irristible – but powerful. A break above that and we’re probably set up for the ‘best six months of the year’ – November to April. That’s the next major test.
The MACD Histogram moved up a smidgin – that’s a bullish sign.
AUSTRALIAN MARKET:DAILY CHART – XJO
The XJO was up four days out of five. Fridat was a bit “sticky” as it hit dual resistance – the oblique down trend line and the 20-Day MA. It reversed from a strong move up early in the day to finish with a “shooting star” candle. That’s sometimes bearish. But one day candles are notoriously unreliable. Given events overseas on Friday night, it seems likely that the XJO will break above short term resistance on Monday. That will give us five days up in a row.
MACD Histogram. Above zero. Positive.
MACD. Below zero. Negative, but moving up.
RSI.9 is at 47.5. Plenty of upside potential.
CCI.14: +36.4. Above zero – positive.
This seems to have plenty of short-term room to move upwards. The test for the market will come at the horizontal resistance levels shown on this chart.
A word of caution. The market was up strongly this week. That’s not confirmed by the Advance/Decline Ratio. The average for the week was below par at 47.2%. Tuesday was a very strong day for the XJO at +1.01%. A/D Ratio that day was 57.5%. Positive but not especially strong. On a day when the index was >1% at the end of a bear trend, I’d expect a rise in the A/D Ratio in the mid-60’s. The end of a bear trend is usually also associated with strength across the board. I’m not seeing that at this stage in the Australian market.
AUSTRALIA – RENKO AND P&F CHARTS
Japanese traders have given us three types of charts, Candle Sticks, Renko and Kagi. Candle Sticks are well known and now usually preferred to the old style bar charts used traditionally in the West.
Renko Charts have an advantage of simplifying price action. It ignores time on the X-Axis and a new “brick” is added when the instrument has moved a specified distance.
The upper chart here is a Renko Chart. The Double Top on the XJO is clearly seen on this chart. The uptrend line from mid-2012 has been broken to the downside. We need to see two “gold bricks” on the chart to have any thoughts that the trend is changing back to the upside. Despite the solid gains this week, a new gold brick hasn’t been added to the chart to break the down trend.
The lower chart is an old charting method used by Western analysts. Again, a new X or O (X is up, O is down) is added when the chart moves a specified amount. They provide objective ways of seeing support/resistance and direction (bullish or bearish). It gave a bull reversible signal on 18 September, and has been in a down trend since then. The bearish price objective is now 4600
These two charts should give pause to anybody thinking of jumping into the market right now. Both use objective, de-personalised methods of showing market turns. Both remain in down trends.
AMERICAN MARKET:SECTOR RELATIVE STRENGTHS
This is similar to the charts above for the Australian market.
The SP500 was down this week, -1.02%. The week was extraordinarily volatile. Three of the five days had daily ranges >2%, and the other two days were 1.44% and 1.78%. Such volatility is not unusual in a secular bear market, but usually portend an end to a short-term down trend in a bull market. So – we’re either at the start of a bear market, or at the end of a short term pull-back. Either/or? Not much use.
The top chart (Sector Strength) shows a bearish scenario (short/medium term) with eight out of nine sectors below the par line (100%) all four major indices below 100%. So – there’s no doubt we’re in a short term bearish pull-back
The long term picture (Bull/Bear Status) is still relatively strong. Only one sector is on Bear Status – Industrials; and one Index (IWM) is on Bear Status.
That’s a bullish picture. So – the chances are – we’re coming to the end of a short-term pull-back in a long term bull market.
AMERICAN MARKET:SP500 DAILY
The SP500 finished down this week -1.02% – but showed strong buying pressure towards the end of the week.
Wednesday’s action was extremely volatile, the day’s range was close to 3%. The candle shows strong buying action and the bounce occurred close to a major horizontal support level.
Four momentum indicators have all turned up. Volatility as measured by the Average True Range was the highest since the beginning of 2013. (I haven’t checked back further than that.)
New Lows on the NYSE fell dramtically at the end of the week. On Wednesday, New Lows hit >600. >400 is extremely rare. On Friday, they’d dropped to just 23 New Lows. That’s back into my “benign” level below 25.
A short term low is in place. The test for this market now lies at horizontal resistance and the 20-Day MA. If it fails there, we may have seen a long term top put in place on the 19 September. The long term top in 2007 occurred on 9 October, 2007. So, although we’re coming into a seasonally favourable time of the year (November-April), it’s not unknown for the seasonally favourable time of the year to fail – especially after a long bull market. The long term top in 2000 was in August of that year, and the following period November-April was poor, down -13%.
AMERICAN MARKET:SP500 – P&F CHART
The Point and Figure chart shows a “low pole reversal”. This is particularly bullish as the previous bear market objective of 1840 was met. The low this week was actually 1820.7, which it touched briefly on Wednesday.
This confirms the bullish action in the regular candlestick chart and the drop off in the New Lows.
WORLD MARKETS:CHINA AND JAPAN – DAILY
The daily chart for China88 (a composite index made up of the A Class stocks on the Shanghai and Shenzhen markets) is in a symmetrical triangle. These can break either way, but the odds a tilted towards a break in the direction of the current trend – which is up.
Japan had an exceptionally poor week, down>-5%. It is extremely oversold (RSI <20) and close to dual support (horizontal and oblique). Odds favour a rebound from here.
Both of these markets are important to Australia. Both are bigger trading partners than the U.S., so what happens there is significant.
Copper had a poor week -1.04%. Copper is a bell-wether amongst the industrial metals, which constitute the fundamental price factor in most Australian miners. Copper has been in a bear market since early 2011 – and that was a big factor in the bear market in Australian miners, also in a bear market since early 2011.
Copper saw a rally from March-July this year. It has since petered out. It’s possible that Copper is destined to reach the major horizontal support level shown on the chart.
Hope was raised on Tuesday when Copper put in a belter, up +1.63%, but that was short-lived with big falls on Wednesday and Thursday. The current down trend from July remains intact.
There’s no 1-to-1 correlation between Australian miners and the Copper price – other factors can affect the stock prices of Australian miners. But POC is a significant factor. While the POC is under pressure, our Miners will feel the effects. As they are the second largest sector in our market, that puts a drag on our major indices.
SUMMARY & CONCLUSION
First, a summary of major world markets: Australia down +1.61%. German DAX up +0.7%. London down -0.47% SP500 down -1.02%. Frankfurt, London and New York, although down, showed strong intra-week buying pressure. Japan down -5.02%. China88 down -0.84%%. Emerging Markets ETF up +0.52%. Global Dow down -0.9%. Global down, along with the three major developed stock markets above, showed strong intra-week buying pressure. GLD (ETF for US$ Gold) up +1.19%. Copper Futures down -1.04%. Markets generally showed strong buying late in the week. Australia led the pack in that regard. DBC (ETF tracking the American Commodities Index, CRB) was down -1.42%.
Despite finishing down this week, everything points to at least a short term rebound in most of the developed markets. (U.S., the Europeans and China). The P&F Chart for the American SP500 shows a bullish rebound.
Australia is not America. Our stock market is obviously affected by the power-house of world markets, but we have our own unique features, companies, and economy. Our market had a good week, but the P&F Chart and Renko are not yet showing a bullish rebound. If America continues to rebound we probably will too. But our market has been much more bearish than America. (Review the Bull-Bear Status charts.) If America stumbles after a couple of weeks, I think we’ll see much more downside.
But – short term – optimism has returned. We should have a solid up-week in the coming week, both in America and Australia.
The best six months November-April are ahead. They have a great record – up about 70% of the time. Just don’t bet on it after a long bull market. There’s still a 30% risk.
Monday, after the market closes in the U.S., both Apple and IBM report. These are two behemoths of the Tech Sector in America. That’s the biggest sector in the American market. How their reports are received could be market moving. On Wednesday BHP will provide an Operational Review. That could be market moving for Australia.
One final word. I had a record number of viewers ever to my blog on Thursday. I was chuffed. But – it’s probably a sign that the current pullback is over.
For daily updates – check http://redbackmarketreport.wordpress.com/
In Europe: Germany +3.12%. London +1.82%. France +2.92%.
In America: Nasdaq Composite +0.97%. New York Composite +1.25%. Russell 2000 -0.35%. Dow Industrials +1.63%. SP500 +1.29%.
The market surge seems to be related to the statement from a European Central Bank member that the ECB will start private sector debt purchases within a few days, i.e., a European version of QE. The markets took off. This might just take up the slack in liquidity perceived with the U.S. Fed stopping its QE program at the end of the month, and giving the European economy a much needed stimulus needle.
Yes – it all looks fantastic – until you look at the Russell 2000, down -0.35%. R2K usually tells the “truth”, in that it is not usually prone to “manipulation” (although individual stocks may be heavily manipulated). R2K is the smallest 2000 stocks of 3000 stocks listed on the NYSE. Because of its sheer size (in terms of numbers not market capitalisation), it is less prone to “manipulation” which can affect the big indices (by market cap). Often, R2K turns down before the general market, and turns up before the general market. That appeared to be happening this week. So today’s action is a bit odd. It came right at the 20-Day SMA. Right where you’d expect some profit taking to occur. Maybe it’s an outlier. Maybe not.
Bear markets are prone to sudden upward movements. This may be one of them. The momentum might continue for a few days.
Here’s the detailed SP500:
The major test for the SP500 should come at the 20-Day Average – or, perhaps, a little earlier at the Support/Resistance line marked on the chart.
Indicators are all turning up and have plenty of upside lee-way – so a test of the 20-Day MA looks the best bet. If it can survive that, this will be up and away – into the best six months of the year (November-April).
Full weekly report tomorrow.
Nasdaq Composite +0.05%. New York Composite +0.14%. Russell 2000 +1.25%. (Second day in a row R2K >1%). Dow Industrials -0.15%. SP500 +0.01%.
CNBC leads with a headline – Dow Jones down six days in a row. Fair enough. That’s true. They could also have lead with, SP500 breaks five-day decline. Dow Industrials was the only one of these five major indices that was negative today.
Here’s a renko chart for IWM (tracking ETF for the Russell 2000):
The worst seems to be over for the Small Caps. It now has to overcome some strong overhead resistance. But, at this stage, it is looking promising. Strength in the Small Caps suggests that confidence is returning to the market.
Here’s the detailed chart for SP500:
I suggested yesterday, that we might see an inside day on the SP500. Today’s candle isn’t exactly an inside day as the high of today is a smidgin above the high of yesterday, but the main body is well within the previous day’s range, so that’s pretty close. Still very volatile with the day’s range >2%.
TSI and RSI are both very oversold – that’s no guarantee of a rebound, but the probabilities are now tilted that way. Money Flow, although well down, still hasn’t hit the buy zone (oversold) so it has held up surprisingly well.
We need to see a strong up day tomorrow. That may not be in the stars. It is Options Expiry tomorrow, so normally we wouldn’t expect a lot of movement tomorrow. But the current volatile conditions are not normal. Anything can happen.
CRB Index up +0.51%. Base Metals were all down, with Copper -1.34%. Iron Ore down -2.1%. It looks like our Miners yesterday (XMM -1.67%) had a feel for what might happen with the Metals overnight. GLD +0.19%. US$ -0.05%.
Oz Stocks in NY:
BHP +0.09%. Rio -0.7%. Both of the big miners showed solid intra-day buying along with the broad American indices.
Westpac +1.13%. ANZ +1.17%. EWA +0.5%. Ozzie Dollar -0.76%.
Discounting for the Ozzie Dollar, those are good results for Oz stocks in New York.
Miners might still be under some pressure today, but I think we’ll be up today.
In Australia, XJO up +0.18%. Volume was heavy – affected by equity index derivatives expiry. So – volume was really about normal. That takes the shine off it.
The market was down about -1.5% early on, so today’s recovery was remarkable.
The pull back wasn’t across the board. Energy led the way, up +1.35%. Dividend stocks also did well. Financials x-Property (XXJ) +0.48%. Telecoms +0.87%. Telecoms is now in an up trend. Miners, however, did poorly -1.67%. They were off the lows for the day, but didn’t participate in the screaming upside reversal that many other sectors showed.
Here’s the Mining Sector chart:
After three days up, we have a bearish candle appearing right at the 20-Day MA. So this index has been rejected right at a major division line. The three day pattern isn’t quite a perfect three-candle bearish reversal, but it’s close enough. This is not encouraging.
Breadth is still poor. A/D Ratio (using eTrade data) was poor at 40.03%. AdvVol/DeclVol Ratio was 47.07%.
This pull-back has been severe. It appears now to be over. But we sometimes get these abrupt turnarounds in bearish corrections, and they fizzle out. I’d like to see confirmation from the breadth figures, and a better XMM profile before getting too excited.
Nasdaq Composite -0.28%. New York Composite -0.75%. Russell 2000 +1.02%. Dow Jones Industrial -1.06%. SP500 -0.81%.
Most of the indices were down more than -2% at one point early in the day. At 1.30 the Dip Buyers came in and bought the market. There’s still plenty of doom and gloom in the media – but they aren’t looking at the Small Caps (R2K) which finished strongly positive today +1.02%. Volumes were very high. I only went back to the beginning of 2013 and today’s volume was the highest during that time span – except for the 19 Sept. 2014 which was abnormally inflated by the Ali Baba debut on the market.
Today’s low point on the SPX probably marks at least a short term low.
Today’s candle covers a range of almost 3%. The Index finished down less than -1%. That’s an amazing one day rebound on very high volume – almost certainly adds up to a short term bottom. We could easily get an inside day tomorrow – but I doubted we’ll see the low of today challenged in the next couple of weeks.
New Lows today on the NYSE were >600, that’s the highest since October, 2011. The correction of 2011 could provide a template here (maybe). We saw events like today’s back in early August, 2011. It took the market a couple of months to finally work off the negative sentiment. That started the remarkable bull run in the American market.
CRB down -0.95%. Copper down -2.5%. Iron Ore -1.1%. Nymex Crude Oil -0.1%. (The fall in Crude might now be stabilising.) GLD +0.34%.
Oz Stocks in NY:
BHP +0.53%. Rio -1.26% (but saw intra-day buying). Westpac +1.36%. ANZ +1.31%. EWA +1.45%. Ozzie Dollar +1.26%. Australian stocks benefitted from the tail wind of the strong AUD.
I doubt our market will be down much today.