SP500 +0.68%, Dow Industrials +0.55%, Nasdaq100 +0.38%, Russell2000 +0.37%, Transports +0.86%, DAX -1.77%.
Today’s action was positive across the American indices. It was a wide range, volatile day. Up in the first half hour till 10 NY time, the market then sold off until 1.00. It then performed the same pirouette it did the day before – except it was earlier today. A V shaped recovery from 1.00 saw all the earlier losses recovered with the market finishing around the highs for the day, set earlier around 10.00. The market continues to be pushed up by action in the big blue chips. Nasdaq and Russell2000 are not as strong. Germany was very weak. If you must have a reason for the German weakness, I guess you can blame the Ukraine. (But see the comments lower down on Precious Metals.)
In the short term, the trend is now to the upside. Today’s candle broke above the 5-Day MA and indicators have turned up. The timetable for a bullish OpEx Week looks like it’s running according to plan.
The CRB Index was up on the day +0.55%. But from Australia’s viewpoint results were poor. Industrial Metals down -1.48% and Precious Metals down -2.12%. (If Germany was down because of the Ukraine tensions, then shouldn’t safe-haven buying push up the PMs price? Beats me.)
Issues specifically relevant to Australia:
The final figures are poor. BHP -1.64%, Westpac -0.99%, EWA -0.69%. I don’t think those final figures provide much of a guide for Australia today. Each of the stocks has a long lower tail – indicating buying pressure. Given the positive result in America, and buying pressure in those stocks (despite the poor Metals results) I think we’ll start on the upside today.
XJO up 0.5%. It was up a lot more earlier in the day, but the afternoon session gave back a solid chunk – not enough to say we had a reversal day, but enough to say that bulls were weak.
I’ve shown a Heiken-Ashi chart this evening. These tend to smooth out noise in the market. Despite the positive finish on our market, Heiken-Ashi fails to show a change in trend. Volume was down today on the previous couple of days. It was less than yesterday. Monday tends to be a low volume day – so I tend to discount any low readings on Monday. Tuesday, lower than Monday, has some significance. Given that the bears were able to push the index lower in the afternoon session, suggests a lack of interest by bulls. No winners – but the bulls are looking a little weaker. The afternoon weakness has continued in after-market trade. Almost all the gains today have been wiped out.
I’m loath to make any predictions other than bullish ones. This is OpEx week in America – which is usually bullish. We’ll probably have an upside pull from the American market – but today’s action wasn’t all that positive. Next week might be a different scenario.
Here’s the Daily Sector Performance Chart:
Gold Mining was the big loser. That might come as a surprise given that Gold (US$) was up in America overnight. But the Gold Price fell as soon as New York trading opened – before our market opened. It’s been going down ever since – and is still going down as I write. That’s a bit surprising given the tensions in the Ukraine – but it looks as if the Gold market is discounting that. A storm in a tea-cup.
Here’s the Gold Miners Chart:
The 50-Day Moving Average has turned down. That’s a signal to “Sell the Rallies”. The chart is below the 5-Day Moving Average. The short term trend is down. The CCI has turned down.
I was short-term bullish on Gold when I saw that positive divergence on the CCI back about two weeks ago. That upside premium has now disappeared. I think the downside has the vote. If the Miners can’t rally on the strife in Ukraine, I don’t think there’s much hope for the Miners. Without being political – the market action is saying that the West is impotent to influence events in the Ukraine. Forget about it. Bigger issues are affecting pressures on the Gold price – and our Miners.
SP500 +0.82%, Dow Industrials +0.91%, Nasdaq100 +0.81%, Russell2000 +0.35%, Transports +0.55%. Funny games were played last night. The market bolted upwards at the start. Highs for the day were seen in the mi-session, then the market fell heavily. By 3.10 NY time, Nasdaq was actually negative. Then the last 50 minutes saw a V-shaped reversal to the upside and most of the afternoon losses were recouped, with the markets finishing close to their highs. This pattern was most extreme in the big cap Dow 30 and least obvious in the small cap Russell2000. Compare the Nasdaq100 (top 100 stocks in the Nasdaq) with the Nasdaq Composite we have +0.81% versus +0.57%. The NewHigh/NewLow Ratio for the Nasdaq Composite was 25/82. That’s just too bearish for a strong up day. This looks like an engineered effort for Options Expiry Week. Some big players have some options currently out of the money that they want to see in the money by the end of this week? Am I being too suspicious?
Here’s the detailed chart for SP500:
Trin (a measure of breadth) was an extremely bullish 0.6. That’s often low enough to exhaust bulls, when seen near the end of a trend. This is too early in the campaign. So it has to be taken on face value. Expect more upside based on that reading.
Everything was up. Good for Australia today.
Specific issues for Australia:
EWA had the drag of yesterday’s poor day in Australia. But not a bad result considering we were down -1.3% yesterday. We should be up today on the back of the good commodities result. Watch how the Financials go today. They’re still the key to our Market.
XJO down -1.3%. Below is a Heiken-Ashi Chart for the XJO:
The Heiken-Ashi spinner reversal from Friday played out today. We now have a down trend confirmed. Volume today was a little below the last couple of days, but the 5-Day Average is above the 13-Day Average, so average volume has picked up in the last few days.
Here’s a sector performance chart for the ASX:
I’ve been talking about the crucial importance of the Financials for the continued health of this market. XXJ (Financials x-Property) down -1.5%. Here’s the chart:
Standard Measure Rule for a rising wedge is a fall to the lower edge of the wedge. That’s about -10% from Thursday’s high. That’s about right for a correction.
Breadth was very poor today – so poor that it probably means bears are exhausted so we should get a consolidaiton or a move to the upside. Today’s Volume going into Advances was just 259million. That’s the worst figure since late June 2013. That was bad enough to put a stop to the May/June 2013 correction. That doesn’t mean that our market will turn around. But it’s probably enough to call a pause for a day or three. I think we need to see a series of poor numbers in the next few weeks to put a stop to this pull-back/correction.
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: Seasonal Patterns
● 7.Australian Market: Financials (XXJ)
● 8.International Markets: SP500 Weekly
● 9.International Markets: SP500 Daily
● 10.International Markets: America – Sentiment
● 11.International Markets: Major World Markets, Summary ●
12.Summary and Conclusion
● 13.SLF – Daily
● 14.STW – Daily
INDICES PERFORMANCE – YEAR TO DATE
XAO: up +1.43%. Six of ten S&P Indices are up. One of the Indices is up only marginally – Materials. Consumer Discretionary is down marginally. The market has been underpinned by strength in Financials. The other two best performers (Info.Tech and Utilities) are relatively small contributors to the overall structure of the market. If Financials start to crack – this market might be in for a bearish event. (See Financials chart later in the report.) Good performance by Utilities might be a contrarian indicator.
S&P Indices Performance – best to worst:
7.Consumer Discretionary: -0.1%
9.Consumer Staples: -1.45%
2.Financials (Ex Property): +3%
3.50 Leaders: +1.33%
4.Small Ordinaries: -1.45%
5.Mid-Cap 50: +3.24%
6.Metals and Mining: -0.34%
7.Gold Miners: +24.4%
The biggest concern for our market is the poor performance of the Small Ordinaries. They’ve been essentially underperforming since early 2011. That’s in part due to the coincident underperformance of the Materials Sector – XSO has a large proportion of miners – but doesn’t completely explain the divergence.
The good recent performance of the Gold Miners should be put into perspective. From April, 2011 to December, 2013, Gold Miners were in a secular bear market which stripped nearly 80% off the XGD. The recent rally should be seen as a bear market rally, these can be impressive.
INDICES PERFORMANCE – THIS WEEK
XAO: down marginally -0.09%. Five of ten S&P Indices are up,
S&P Indices Performance – best to worst:
3.Consumer Staples: +0.65%
6.Consumer Discretionary: -0.28%
2.Financials (Ex Property): +0.1%
3.50 Leaders: +0.17%
4.Small Ordinaries: -0.61%
5.Mid-Cap 50: -0.1%
6.Metals and Mining: +0.23%
7.Gold Miners: +6.84%
A flat finish which hides the fact that the market was up strongly, then gave up all those gains on Friday. Small Ords continues to perform relatively poorly. That’s one of my main concerns with this market, taking a long term perspective. The out-performance of Utilities in a bull market is another warning flag.
MONTHLY CHART – XJO
The long term (monthly) chart shows no sign of serious deterioration. After two weeks into this month, the XJO is up +0.63%
The Index continues to flirt with Resistance set by the October, 2013 highs – but can’t get past there to any significant degree. That also aligns, more or less, with the 61.8% retracement level of the GFC bear market.
The Index is above the 02-Month Moving Average and above major horizontal support at 4980 (round figures). It is also above the rising support line from June 2012, which is closely aligned with the 20-Month Moving Average.
MACD Histogram, RSI and CCI are all showing divergence from the main chart. This means that momentum has slowedand is sometimes predictive of further downside.
The very long term chart is held in a trading range 4980-5460 (round figures). The Index rose above 5460 this week, but couldn’t hold and finished at 5428.6.
WEEKLY CHART – XJO
The XJO finished at 5428.6, up marginally this week, +0.11%. The index broke above the trading range, but fell back heavily on Friday, leaving a hypodermic needle printed for the week. These are essentially bearish, but need a down week to confirm.
The Index still has plenty of support below. At this stage this doesn’t look the start of a serious correction.
1.MACD Histogram. Flat, more or less. Neutral. 2.MACD. Negative divergence but still above zero. 3. RSI.9 is at 59.8. Negative divergence. 4.CCI.14: +101.5. Possible negative divergence.
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.
DAILY CHART – XJO
This is a Heiken-Ashi Chart of the XJO. It’s similar to a candlestick chart, but smooths out some of the noise that affects candlestick and bar charts
In reading H-A Charts we look for long bodies to show trend continuation, and spinners to suggest trend reversals. Spinners aren’t highly reliable – but they can act as red flags.
We can see that on 3 January, 26 February and 10 March the H-A Chart had spinners which correctly predicted the down trend which followed.
On Tuesday, 8 April, H-A Chart showed a spinner – coming at the top of a slow up trend. I thought then that the trend might be over. But the next day failed to confirm. We then had two strong up days, followed by another spinner on Friday, 10 April. We need a down day to confirm the trend change. Watch Monday very carefully.
There are no guarantees in the Stock Trading Game – just probabilities. If we get a big down day on Monday, the probabilities strongly favour further downside.
This graph presents the performance of the Australian ASX500 (All Ordinaries) over the past four years (2010-2013) and 2014 Year-to-Date.
It’s clear from this graph that the Australian market suffers a blue funk each year around April/May. In 2011, it was more than a blue funk – the market didn’t recover all year. It didn’t even have the highly reliable “Santa Rally” in 2011.
In 2010, 2012 and 2013, the market recovered in late June or early July and recorded good gains.
Consistent across all years is a dip in November, sometimes beginning in October.
The action in 2014, when compared to previous years, is a little disconcerting. We’ve had a dip from the beginning of the year into early February – like 2010. Then we had a dip in the early part of March – like (drum roll) 2011. 2010/2011 both peaked in early/mid April, earlier than in 2012 and 2013.
Although 2010 had a good rally from July, the high for the year was seen in April.
In the previous chart, I’ve shown that the XJO could be headed for a dip – and dips at this time of the year tend to extend into late June. If we’re seeing a top right now, that lines up with 2010 and 2011 when the tops came in April. Warning.
In the past four years, the month of May has been negative in all four years. The other weakest months are June and November. So it looks likely that our market won’t be much good until at least late June or the beginning of July.
(Proviso. It’s dangerous to expect markets to follow seasonal patterns. In this case, I’ve only looked at four years. Much too small a sample size to be reliable. In technique, the above is a hybrid of the analogic approach and the seasonal approach.)
Financials have been the mainstay of this market in recent months. (See commentary on the initial chart in this Report). So if Financials begin to fall, this market is probably in for significant downside.
Friday’s candle was a bearish engulfing candle. According to Bulkowski (The Pattern Site), these are fairly reliable and predict a downside movement 79% of the time. Those figures are, however, taken over bull and bear markets. In a bull market, the results are not so impressive.
Context is extremely important in assessing probabilities in the market. This action occurred at a major S/R area (see blue line). That blue line is the tops back in November and October, 2013. The Index was overbought (RSI at 76) and a negative divergence has set up on the CCI. The chart is also showing a very large bearish rising wedge. The target for such a formation is the lowest point of the rising wedge.
The probabilities lie to the downside.
SP500 – WEEKLY
This week saw the SP500 down and break through a major Support/Resistance level.
The last time the SP500 suffered a correction was in 2011, about 31 Months ago. The average time between corrections is about 18 Months. So, on average, we’re overdue for a correction. It should be remembered, however, that the SP500 went from 1990-1997 without a correction. So averages can be misleading.
Until the major up trend line and 40-Week Moving Average are broken to the downside, we have to presume that this is just another regular pull back. Another signal would be a break by the MACD below zero. It hasn’t been below zero since December 2011, over two years ago.
The MACD is showing a negative divergence for the first time in this bull market. The chances of a correction are increasing.
SP500 – DAILY
How low can it go?
SP500 is down almost 4% since its closing high on 2 April. On Average, more or less, the SP500 has three pullbacks of 5% a year. It’s already had one this year of almost 6% (earlyJan/earlyFeb). 10% corrections occur about once a year. 20% corrections occur about every 3.5 years. The last big correction finished in October, 2011.
The last time we had a 10% correction was in May/June 2012. So we’re overdue for a 10% correction.
There’s a theory in Technical Analysis that all gaps must close eventually. On the SP500 chart there’s a small gap on 12 February. A fill of that gap would produce a fall of almost 5%. There’s a larger gap sitting right at Support/Resistance. That looks like a logical place for a pull back. That would represent a pull-back of about 6%. Sounds about right.
Indicators are getting into oversold levels. Breadth measures (e.g., Trin) are also into regions where rebounds occur. There might be another day down in this, but I doubt there’s more than that before we see either a consolidation or rebound.
Considerable technical damage on a medium term scale has been inflicted on the American market (see previous chart). So I think we’ll see lower levels before this correction is over. Of course, this could be the start of a dreaded 20% correction.
Is this the end of the bull market. I doubt it – not while short term interest rates in America remain near zero.
AMERICAN MARKET – SENTIMENT
Sophisticated traders often look to the Investors Intelligence data for information regarding Investors Sentiment. II has reduced the findings to a matematical ratio. Bull/Bear Ratio.
The received wisdom is that over 3/1, a pull back is due. Fair enough.
This chart (freely available on stockcharts.com) suggests that the data can also provide insight into when major corrections are due. Rather than look for an extreme in the ratio, look for a lower high after an extreme high reading – negative divergence. A new major high in stocks without a new major high in the B/B Ratio.
The two previous major corrections have followed this pattern. Yes – a reading higher than 3/1 does indicate the likelihood of a pull-back – but not THE top of the bull rally
This suggests that both Smart Money and Dumb Money record overly positive sentiment before pull backs, but that the Smart Money gets bearish before the Dumb Money as the market goes on to THE top. And SM is then well positioned to buy as the correction reaches it’s lows.
And that’s what we’re seeing now. B/B Ratio reached a post-GFC high in late 2013. Stocks duly corrected in early 2014. The American market (SP500) has since gone on to new all time highs with a lower high on the B/B Ratio. If history repeats, watch out below.
(I’m not sure I’ve explained that very clearly – but I hope you get the gist. Perhaps the chart with its notations speaks for itself.)
MAJOR WORLD MARKETS –
The major stock indices for Europeans (Germany, London) and Japan (three major developed economies) are all below their 50-Day Moving Average. That’s a market between bull and bear.
The two developing economies (China and India) are both in bullish profiles. These are our first and third biggest trading partners.
That goes some way to explaining why our market has been relatively bullish while the Americans and Europeans have been bearish.
SUMMARY & CONCLUSION
Compared to the stock markets in most developed countries, Australia performed relatively well this week. That is, at least in part, due to the good performance of the Ozzie Dollar (not shown in this report) and the good performance of developing economies such as India and China.
The good performance might be coming to an end. The Australian market was very bearish on Friday – see particularly the performance of Financials x-Property. Financials have been the main force behind Australia’s good performance. It is the largest sector in our stock market – by far. Financials since the beginning of the year is up +3.26%, while the broad market (XAO) is up +1.43%. If Financials fall, it seems unlikely that other sectors can take up the slack.
In the short term, any pull-back might be muted as the American market is short term oversold. So a bounce in the Americans (and Europeans) is likely. That might act as a countervailing power to the current apparently negative appearance of the Australian market.
Next week is OpEx Week in America. Recently it’s tended to be positive for the American market.
Watch what happens on OpEx Day. If it’s down – the market is likely to fall the following week. If it’s up – it’s likely to rise the following week.
We’re coming into a seasonally weak time for the Australian market. Tops tend to appear in April/May. May has been negative every year for the past four years. June has not been very strong.
My analysis of the Bull/Bear Sentiment Ratio suggests we’re on the brink of a correction, not just a pull-back, in the American market.
It’s time to think defensively.
For daily updates – check http://redbackmarketreport.wordpress.com/
ETF: SLF – DAILY
SLF is the tracking stock for the Property Sector.
SLF was up this week, 2.46%It’s clawed back into the rising channel and is now at major overhead resistance. This could get interesting next week.
According to the Sydney Morning Herald, SLF Dividend Yield is 3.8%. Dividends are paid quarterly. The most recent Ex-dividend date was 31 March, 2014. Dividend was .0552 per share. That’s the lowest dividend since late 2011. (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 (JXO).
This week the ETF was flat, 0.00%. The Daily Chart is showing a rising right-angled triangle. The weekly candle this week is a bearish reversal candle (up then down) failing right at resistance. That’s a powerful negative sign.
According to SMH, Dividend Yield is 4%. That’s about on a par with 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 $51.04, no mvoement from last week.
The selling continues. SP500 -0.95%, Dow Industrials -0.89%, Nasdaq100 -1.17%, Russell2000 -1.44%, Transports -0.93%.
All of these major indices are no below their 50-Day MAs. Today’s candle on the Nasdaq100 is a “tombstone”, so it might begin to consolidate or turn up here. Other than that, there’s no obvious sign yet that the selling if finished.
Here’s the more detailed chart of SP500:
Indicators, especially RSI and CCI, are close to zones where we can expect consolidations or a rebound. 5-Day Cumulative Trin is above 7. It’s been above 7 three previous times since the beginning of the year. The first of those (24 Jan.) led to a consolidation then a renewal of the selling. The other two times (5 Feb. and 14 March) led to rebounds. This feels more like late January than the other two times.
Results for issues directly relevant to Australia listed on the NYSE:
This Australian “stuff” is clearly performing better than the U.S. That’s in part due to the recent good performance of the Ozzie Dollar. Westpac actually had a good night last night, up +0.62%, while BHP was barely down -0.18%.That’s enough for today. Full Weekly Report tomorrow.
Last night was ugly. SP500 -2.09%, Dow Industrials -1.62%, Nasdaq100 -3.13%, Russell2000 -2.78%, Transports -2.1%. DAX -0.54%.
In about the first hour last night, Dow 30 and SPX fluffed about with not a lot happening. Then the selling started, and it was relentless. Any effort to make a rally was sold into. Nasdaq and RUT were down from the starting bell. They’ve been the weakest, and until we can see a turn-around in those Indices, this market will be bearish.
Here’s a more detailed chart of the SP500.
I’ve been talking about the major S/R Line on the chart for some time and saying that if it breaks, the market will be in for a significant pull-back. The obvious target would be the small GAP marked on the chart. Previously I’ve noted other gaps further down on a longer term chart. They’re also possibles. But, let’s see how this goes. This session was so bad, the next one is likely to be a Narrow Range day. And next week is OpEx Week. In recent times, OpEx Week is often bullish.
CRB Index was up modestly, +0.22%, helped by Precious Metals up +1.18% and Industrial Metals +1.15%. The other three sectors (Livestock, Agriculture and Energy) were down. Our Gold Miners are likely to be the only bright spot in our market today.
Issues relevant to Australia:
The first three show extremely bearish two-day candle formations. I spent some time in yesterday’s Morning Coffee report on EWA. My bearish view came to fruition today. Our currency is showing a possible “evening star” candle. If that’s followed by a big down candle, any support from our currency for stocks will disappear.