Weekly Report, week ending 17 May, 2013
CONTENTS
INDICES ONE-WEEK PERFORMANCE
XAO: Down -0.6%. Six of 10 S&P Indices were up.S&P Indices Performance – best to worst:
Other Indices:
The market was back into Risk Aversion mode this week. Defensives were at the top of the league table and Materials at the bottom. Given the sizzling pace set by Risk Assets the previous week – it wasn’t surprising to see them give back some of it this week. Gold Miners were smashed again this week.
MAJOR WORLD MARKETS
INDICES ONE-WEEK PERFORMANCE
Performance of major world indices this week:Some overlap exists in some of these indices. DJ World is made up of about 40% American companies. Emerging Markets is made up of about 17.5% Chinese companies.
Australia was the worst performer this week. The only other negative performer was the Emerging Markets Index. Better face it Australia – you’re really a Third World Country. Only joking. What happened? Some, of course, will put it down to That Budget. But that’s political. It probably had more to do with poor metals prices. (See the Copper and Gold charts later.)
Meanwhile – Japan continues to be the Energizer Bunny.
AUSTRALIAN MARKET:
MONTHLY CHART – XJO
The Index is currently at 5180.8. Horizontal support/resistance lies at 4980 (round figures). The Index is down -0.2% for the month of May. Only final figures are important.
The index is above S/R at 4980. This has history going back to 2006. So it is a very important level. The index is currently consolidating within an old congestion zone which was important back in2006 and 2008. That history may be too old to be of any significance. That’s an old resistance level, so it may not mean much. In the long term, this Index looks likely to move up to the long term 2007 high around 6800 (round figures). For that to happen, the Index must not breach recent support at 4980.
Some Indicators are currently flashing bearish signals. They can do that for months before the Index turns bearish.
We follow trends in the index – indicators are just warning signs.
The lowest pane is a comparison of the XJO performance against the SP500 (America). From the end of the GFC, Australia’s comparative performance was dismal. Briefly, from mid-2012 to Feb.2013, that looked likely to turn around in favour of Australia. Since February, however, we’ve been on a relative slide.
AUSTRALIAN MARKET:
WEEKLY CHART – XJO
The XJO was down this week, -0.49%.
The chart shows that the Index has surpassed the March highs.
Indicators are all showing negative divergences. Those divergences can be worked off if the Index continues upwards. They become important when the Index turns down. It is, however, looking increasingly like April, 2011.
This is what I said last week: “For a medium-long term sell signal we need to see a break of the horizontal support provided by the trough in early April. Support around 4980 (round figures). Given the divergences on the indicators, I can’t see a lot of upside in this run up. But – the medium term trend and the short term trend are both up. Until they reverse, there’s not too much point in speculating.”
Nothing’s changed despite the small pull-back this week.
AUSTRALIAN MARKET:
DAILY CHART – XJO
The XJO finished at 5180.8.
Major Support: 4980 (round numbers).
Indicators:
The was overbought but falls on Wednesday and Thursday worked off that condition. Near term horizontal support hasn’t been broken. Friday’s “inside day” candle (bullish harami) suggests this pull back is over. A break below near term horizontal support would suggest some danger to this market.
AUSTRALIAN MARKET
DAILY CHART – METALS AND MINERS.
The XMM (Metals and Miners) finished at 3100.2.
Support: 2930(round numbers). Resistance: 3252.5. The recent high.
Indicators:
The market was extremely oversold. The week before this saw a sizzling move up. It’s now pulled back from that to test support. That test looks to be successful. Another day up would prove it. The probabilities lie to the upside. A successful bear attack of support would suggest that the recent rise was just a reaction rally in an on-going bear market.
AUSTRALIAN MARKET
WEEKLY CHART – FINANCIALS x-PT
The XXJ (Financials ex-Property) finished at 6684.3, UP +0.3% for the week.
Support: 6430(round numbers). Resistance: 6823.
Indicators:
The Index eked out a small gain this week with not much movement one way or the other.
Until the standard error channel is broken to the down side, bulls won’t be worried. Even then, there’s a long congestion zone from earlier in the year which might contain any pull-back. The long-term trend remains up.
INTERNATIONAL MARKET
SP500 – DAILY
The SP500 finished at 1666.1.
Support: 1590 (round numbers). Resistance, somewhere in the stratosphere.
Indicators:
The market is overbought. Being at the top edge of the Standard Error Channel suggests a pause in proceedings is necessary. It can keep going up above the upper level of the Channel – but the longer it does, the bigger the fall. At this stage – it only suggests we should expect a consolidation.
On Balance Volume is an old fashioned indicator rarely looked at these days. I’ve always found it useful. When a divergence sets up – a turn is usually not far off. There’s no divergence yet.
INTERNATIONAL MARKETS:
JAPAN NIKKEI – QUARTERLY
This is a 30-Year Quarterly chart of the Nikkei – the Japanese benchmark index.
The recent rise, while breath-taking, is still shorter than the previous longest counter-trend rally. Such rallies are typical of secular bear markets.
The crucial test for the Nikkei comes when it gets to the oblique restraining line marked on the chart. It could have another a while to go.
Once again, although indicators are at extreme levels, no typical indicator divergence has appeared to suggest that this run is likely to reverse. (Note the divergences which appeared before the last big run-up failed.)
It’s possible, of course, that Japan will once again experience another “Magic Decade”. We’ll have to wait and see.
INTERNATIONAL MARKETS:
GERMAN TITANS – DAILY
The Dow Jones Germany Titans 30 in USD is an index made up of the 30 largest German stocks by market capitalisation, priced in USD. (It’s a bit more complicated than that, but that’s the Coles Notes version.) It’s more or less the German equivalent of the Dow Industrial Index.
This chart is particularly interesting from a Technical perspective. Friday, 10 May, saw a reversal candle with a long upper wick. That indicates strong selling pressure. This week every daily candle has a long lower wick – indicating buying pressure. But that hasn’t translated into an upward movement. The chart pattern, short term, is a right-angled triangle – which usually breaks to the downside. All this indicates a huge battle going on between bulls and bears. No winner yet.
Wait.
INTERNATIONAL MARKETS:
$US GOLD – DAILY
After the dramatic fall in the Gold Price five weeks ago, the PM made a big reversal, but within normally expected technical expectations.
The gap formed on the weekly chart by the big fall on 14 April was then filled. (The fit was perfect – to the exact cent). This is in accordance with “Gap Theory”. A sideways consolidation then occurred. This week the PM fell heavily and is now testing the recent low.
I’ll be surprised if support is broken to the down side. If it is – I think the break will be short lived. There will be a lot of “sell orders” set up just below the recent major low. It often happens that a market will trigger those sell orders, then reverse, thus trapping the shorts – and a short squeeze occurs. The market is a mechanism for transferring wealth from the many to the few. And that is how it is often done.
All of this is highly speculative thinking – perhaps wishful thinking? But it’s the result of long experience in the market. I think we’ll see a rebound here soon to test the congestion of the recent flag. The indicators are also very oversold, giving weight to the rebound argument. Let’s see how it goes.
INTERNATIONAL MARKETS:
COPPER – WEEKLY
Here’s a Weekly Chart for Copper for the past two years.
Last week’s candle, after two weeks of strength, was a narrow range “doji” candle. That indicated weakness in the uptrend. That converted into a big down week this week , down -4.53% .
Normally, the candle pattern set up by the past three weeks would be bearish. But this has taken the index back to a strong support level.
So, I think we have to read this as a test of support, not necessarily a bearish action. What happens now is important. A break below that support level – and the medium term bear trend is back as the dominant feature. A rebound here and we’re seeing more upside. And bullish for the Australian market.
SUMMARY & CONCLUSION
On the international scene, weekly action has been positive with Japan the star. The figures: XJO, -0.49%; SP500, +2.86%; Europe Top 100, +1.09%; China, +1.56%; Nikkei, +3.63%, Global Dow, +0.73%, Emerging Markets, -0.34%. Australia was the clear loser in the past week – victim of weak metals prices and a sharply lower AUD. Japan was once again a juggernaut. It’s up more than 10% in the past two weeks. Since the beginning of this bull market in June, 2012, it is up almost 84%. There could be more in it. Metals: Copper, -4.53%%; US$ Gold, -6.11%
For the past year or so, the Australian market has surged upwards in a yield driven bull rally. The big banks and Telstra, in particular, have benefitted. More recently those have weakened and the Miners have taken up the slack. This past week the Defensives/HighYield Sectors were once again to the fore. The Miners fell on weak Metals prices. The Miners are now back to support. Copper and Gold are also at support. A bounce here is a probability. Although the past week was weak, the medium term trend remains up. Major divergences are setting up on Indicators, so there may not be much more in next current rally.
Looking to the American market for a guide is no longer a valid strategy. The Australian market has consistently underperformed the American SP500 since the end of the GFC (see Monthly XJO Chart – Relative Strength Pane). Turning points in the American market are still important, however, for our market. The SP500 remains in a strong up trend, short/medium/long term. On the daily chart, there’s no divergence on the OBV (On Balance Volume). This is often a precursor to a major pull back. RSI.9 is, once again, well above the 70 level, so an easing back of the Index is possible to work off the pent up pressure to the upside. Nor is a major negative divergence being shown, as yet, by the Bullish Percent chart. This is also often a precursor to major pullbacks. (Chart not shown in this report. See Stock Charts for the relevant chart.)
Black Swans and Falling Pianos are always potential dangers.
Remember: do your own research. Make your own decisions. I hope that the information I show might help you just a little.
For daily updates – check http://redbackmarketreport.wordpress.com/
ETF: SLF – WEEKLY
This week I’ve continued to show the chart for XPJ – the Property Sector. I’ve mentioned before that SLF (the tracking stock for XPJ) has low liquidity which means that prices on offer are often those offered by the market maker. They offer prices with a very wide spread. If you put in an “at market” order you’ll often end up with a price which is out of kilter with the underlying instrument. This also results in distortions in the tracking stock, SLF.
The Index is beginning to go berserk. This week’s candle is completely above the Standard Error Channel. RSI.9 is at its highest level in this bull market, in place since August, 2011. It’s always dangerous to call the top in a rampant bull market – but this one is looking close. Too many people are piling into this one.
Throughout this bull rally, the market has just steadily risen. Any pull backs have been muted. This is not now a steady rise.
This week’s candle is also a reversal candle – indicating that selling pressure came into the market after an early rise. We need to see a big down week and a break of the short term up trend line to be confident of a significant correction.
The Property Sector is an interest rate sensitive sector. It’s borrowing costs go down and investors seeking income will switch out of other instruments (e.g., bonds and bank accounts) and into Property Trusts seeking higher dividends. While the RBA is in rate cut mode, it’s difficult to see how the Property Sector can suffer a reversal of the major trend. However, if the general market falls, Property won’t be immune – although falls could be somewhat muted.
According to Comsec, SLF Dividend Yield is 4.6%. That remains good value but the lowest its been for a long time. Still – better than bank interest. Dividends are paid quarterly. Ex-dividend date was 28 March (Thursday). Dividend was .078c per share.
(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.
This week the ETF was down, -0.24%. (XJO down -0.49%). The short term trend is up. The long term trend is up.
The ETF remains within the long-term SEC and above the 30-Week TMA. Respect the trend.
Indices are generally showing negative divergences. This could easily reverse in the near future.
Take signals from the XJO chart.
According to Comsec, Dividend Yield is 3.5%. You can probably do better in a term deposit – without any growth. Dividends are paid half-yearly. Next ex-dividend date will be at the end of June.
(STW is the Exchange Traded Fund which tracks the performance of the ASX200.)
OFF THE BEATEN TRACK – WHEN DOES AN AMERICAN BULL MARKET FAIL?
Nobody knows the answer to that question in any certainty. But history suggests that changes in interest rates have a major effect. While the Federal Reserve maintains its low interest rate policy, there seems little chance that the current bull market will fail. There will always be pull-backs – but the direction of the long term trend will remain unchanged.
The question of interest rate changes can be complex. It’s when the Yield Curve flattens or inverts that the stock market begins to fail. The Yield Curve flattens when the gap between short-term and long-term rates shortens. Here are three charts showing how the Yield Curve flattened at the top of the previous two American bull markets – and hasn’t flattened yet in this iteration. In fact, in Year 2000 – the Yield Curve actually inverted; i.e., short term yields were higher than long term yields:
Only when the Federal Reserve begins to raise interest rates – several times – will the yield curve flatten. That seems to be some time way in the future.
REDBACKA
Morning Muffins, Saturday, 18 May, 2013
Above is a Candle Stick chart for the SP500.
In America:
- SP500 +1.03%
- Dow Industrials +0.8%
- Nasdaq100 +0.99%
- Dow Transports +1.26%
- Russell 2000 +1.11%
Comment: A strong day across the board. Today was a bit odd for a number of reasons. I mentioned yesterday that OpEx Day is usually a narrow range, high volume day. That was wrong on both counts. The major indices were following the usual narrow range day pattern until about 2.00 p.m., then they took off. Volume, although at the higher end of recent activity, was not especially high. It usually sticks out like a sore thumb. Not today.
Really odd was the volume pattern on the SPY. The SPY is the ETF tracking the performance of the SP500. Volume on the SPY is not affected by OpEx Day the way the major indices are. Volume on the SPY in the last 15-Minutes was the highest for the past 10 days. What’s going on? I haven’t a clue – but, maybe, a little irrational exuberance is creeping into the U.S. market.
NewHighs/NewLows. 449/29. Ratio: 93.9%. NL<NH. In the Do Not Sell Zone. New Lows are now solidly in the “nervous” zone for the third day in a row. That suggests a little weakness creeping into the market. It’s below the radar at this stage – but that’s the way these things work. The big shorters won’t be betting the house on that figure.
Technical Comment on the SP500 (closed at 1658.78)
Indicators:
- MACD Histogram. Below zero. Negative.
- MACD. Above zero. Positive.
- RSI.9 is at 76.5. Overbought.
- Stochastic. 93.8. Overbought and below its signal line.
- CCI.14: 129. Overbought. Possible negative divergence setting up.
Support and Resistance:
- Horizontal Support: 1593.4.
- 40-Day TMA: 1581.
The market is now overbought and indicators have set up small negative divergences. New Highs on the Index without new Highs on the Indicators are a sign of slowing momentum. That’s not a sell signal – just an indication that the rate of upward movement is slowing – something which must happen before a move down. That’s not a sufficient condition. We need to see a break below the short term up trend line.
Yesterday, in Australia, we saw a narrow range day at the lows of a short term pull-back. That’s usually a sign that the pull back is over.
Redbacka
Morning Muffins, Friday, 17 May, 2013
Above is a Candle Stick chart for the SP500.
In America:
- SP500 -0.5%
- Dow Industrials -0.28%
- Nasdaq100 -0.11%
- Dow Transports -0.8%
- Russell 2000 -0.32%
Comment: Yesterday’s break above oblique resistance may have been a false break. Today’s candle is an “inside day” on heavy volume. A big battle occurred between the bulls and the bears. In the last two hours, the bears prevailed and managed to take the market negative.
NewHighs/NewLows. 382/37. Ratio: 91.2%. NL<NH. In the Do Not Sell Zone. New Lows are now solidly in the “nervous” zone. I was surprised yesterday, on a positive day, that the NLs crept into the “nervous” zone – but it is now looking like no accident. But the big shorters won’t be betting the house on that figure.
Technical Comment on the SP500 (closed at 1658.78)
Indicators:
- MACD Histogram. Below zero. Negative.
- MACD. Above zero. Positive.
- RSI.9 is at 71.3. Overbought and falling.
- Stochastic. 94.. Overbought and below its signal line.
- CCI.14: 115.3. Overbought. Possible negative divergence setting up.
Support and Resistance:
- Horizontal Support: 1593.4.
- 40-Day TMA: 1578.6.
The market is now overbought and indicators have rolled over. They’re not yet signalling “sell” – but are close. A big down day tomorrow would suggest a short term down trend. That seems unlikely as tomorrow is Options Expiry Day – typically a narrow range, high volume day. Sometimes it varies from the norm – so we’ll just have to wait and see. As well, the Federal Reserve plans a big POMO day for Friday. POMO days typically inject somewhere around 1-2 Billion $ into the economy. Friday’s plan is 4.75-5.75 Billion $. That may provide a floor to the market. POMO Calendar is at: http://www.newyorkfed.org/markets/tot_operation_schedule.html
Last night in America the following which may have effects in Australia today were: Copper was weak -0.92%, Gold was down a little -0.4%, Oil was up +o.77%, Ozzie Dollar was weak -0.4%, BHP was flat -0.15%, Westpac was weak -1.63%. There’s nothing much there for Australia today. Let’s see how it goes today.
Redbacka
Postprandials, Thrusday, 16 May, 2013
Summary of major indices In Australia today:
- Twenty Leaders -0.3%
- 50 Leaders -0.4%
- XJO -0.5%
- XAO (All Ords) -0.6%
- Small Ordinaries -1.9%
- Financials (ex Property Trusts) -0.5%
- Materials -1.5%
- Consumer Staples +1.7%
- Energy -0.4%
- Health -2%
- Telecoms +1.2%
- Consumer Discretionary -1.2%
- Utilities -1.1%
Indicators
- RSI9: 54.8. Falling below 70 and its uptrend line. Negative..
- MACD Histogram. Below zero. Negative.
- MACD: Above zero. Positive. But falling.
- Stochastic: 65.8. Below the 80 level. Negative
- CCI.14: +7.8. Getting close to zero. A break below zero would be very negative.
The market continued on its down path today. All indicators are on consensus “sell” settings. The up trend line has broken to the downside. Some technical damage has been done, but this Australian market is still in the “walking wounded” category. If bears have any mettle – now’s the time they need to show it. The chart is close to breaking below a major horizontal support level and the 20-Day TMA. A break lower here would put the market into the critical category. Horizontal support is just -0.36% away. That’s less than the market fell today and yesterday. So that’s easily within reach. A bounce off support here – and the bulls are back in business. Tomorrow could be interesting. Just to thwart us, tomorrow will probably be a narrow range day holding just above support. 
CBA:
The chart is at dual resistance (horizontal and oblique). All indicators are showing negative divergences. Today was a big reversal day, finishing well below its opening quote. The probabilities lie to the downside. Given how important this one stock is in the Australian market, this does not look encouraging.
Redbacka
Morning Muffins, Thursday, 16 May, 2013
Above is a Candle Stick chart for the SP500.
In America:
- SP500 +0.51%
- Dow Industrials +0.4%
- Nasdaq100 +0.22%
- Dow Transports +0,84%
- Russell 2000 +0.26%
Comment: Yesterday’s big move had enough “oomph” to push the market higher today. And it is now out of the up trend channel. This is now exceptional high – and we never know where these moves will end. But they usually end badly. R2K was a little weak today (relatively), so that might be the first chink in the armour – but not enough for shorts to bet the house on.
NewHighs/NewLows. 536/25. Ratio: 95,5%. NL<NH. In the Do Not Sell Zone. New Lows have crept up into the “nervous” zone. I wasn’t expecting that – but confirms the relative weakness in the R2K. Again – shorts wouldn’t bet the house on that.
Technical Comment on the SP500 (closed at 1658.78)
Indicators:
- MACD Histogram. Marginally below zero. Neutral.
- MACD. Above zero. Positive.
- RSI.9 is at 79.5. Overbought. A smidgin below the “extreme” level.
- Stochastic. 97.3. Overbought. Back above its signal line.
- CCI.14: 137.1. Overbought. Possible negative divergence setting up.
Support and Resistance:
- Horizontal Support: 1593.4.
- 40-Day TMA: 1576.6.
The market is now overbought. RSI is the highest since late January. But no negative divergence has set up. So any pull back is likely to be weak and probably bought, again, by the bulls. On Balance Volume is also showing strength with no negative divergence. The trend is up. A couple of chinks appeared today (see above). It’s possible that the upper level of the uptrend channel will now act as support. But – if this does reverse in the near future, I think that will give way. That still won’t change the long term trend. The long term holders won’t be concerned until the bottom level of the channel is broken to the downside.
Last night in America the following which may have effects in Australia today were: Copper was weak -1.17%, Gold was down a little -2.31%, Oil was flat +o.15%, Ozzie Dollar was weak -0.0.5%, BHP was weak -1.71%, Westpac was weak -0.72%. There’s nothing much there for Australia today. Gold was especially weak but other commodities, although down, weren’t as bad as the previous day. It will be interesting to see today if CBA can continue it’s good work from yesterday. If it can, then our market has the chance to finish quite strongly. But – I’m not hopeful given other weakness last night. Yesterday saw technical damage inflicted on our market – but not terminal. Let’s see how it goes today.
Redbacka
Postprandials, Wednesday, 15 May, 2013
In Australia today:
- Twenty Leaders -0.3%
- 50 Leaders -0.4%
- XJO -0.6%
- XAO (All Ords) -0.6%
- Small Ordinaries -1%
- Financials (ex Property Trusts) +0.2%
- Materials -2%
- Consumer Staples -0.8%
- Energy -0.2%
- Health +0.1%
- Telecoms -0.1%
- Consumer Discretionary -0.6%
- Utilities +0.2%
Indicators
- RSI9: 62.2. Falling below 70 and its uptrend line. Negative..
- MACD Histogram. Below zero. Negative.
- MACD: Above zero. Positive.
- Stochastic: 80.3. Overbought. Below its signal line – negative. Almost below the 80 level.
- CCI.14: +75.5. Falling below +100. Negative Divergence
The market broke below its up trend line. Indicators are almost on a consensus sell signal. Stochastic below 80 would complete the picture, but I think 80.3 is close enough. The market is now on the “walking wounded” list. A break below the major horizontal support line shown on the chart would put it into the “critical” list. That’s -0.86% below the current level. The market can do that with one big down day. So – let’s see how it goes tomorrow. Maybe the “walking wounded” will be visited with a miracle cure. We’ll see.
Redbacka
Morning Muffins, Wednesday,15 May, 2013
Above is a Candle Stick chart for the SP500.
In America:
- SP500 +1.01%
- Dow Industrials +0.82%
- Nasdaq100 +0.47%
- Dow Transports +1.92%
- Russell 2000 +1.25%
Comment: I mentioned yesterday that the market was building up to a big move. We got it today – on heavy volume compared to recent days. Breadth was good.
NewHighs/NewLows. 495/14. Ratio: 97.2%. NL<NH. In the Do Not Sell Zone.
Technical Comment on the SP500 (closed at 1650.34)
Indicators:
- MACD Histogram. Below zero. Negative.
- MACD. Above zero. Positive.
- RSI.9 is at 77.1. Overbought
- Stochastic. 97.8. Overbought. Back above its signal line
- CCI.14: 122.6. Overbought. Possible negative divergence setting up.
Support and Resistance:
- Horizontal Support: 1593.4.
- 40-Day TMA: 1574.8.
As I’ve drawn it, the market is now at the restraining line of the rising wedge, and the longer term up sloping channel. Today’s action was very strong on heavy volume. I’d expect at least a pause here.
The market is now overbought. RSI is the highest since late January. But no negative divergence has set up. So any pull back is likely to be weak and probably bought, again, by the bulls.
Last night in America the following which may have effects in Australia today were: Copper was weak -1.97%, Gold was down a little -0.38%, Oil was weak -0.86%, Ozzie Dollar was weak -0.66%, BHP was flat -0.12%, Westpac was a disaster -3.54%. BHP and Westpac both look ready for a rebound – so we’ll probably be up and ignore the weak commodities.
Redbacka
