No regular morning report today on the American market overnight. Some medical issues intervened.
The overnight market, on the face of it was relatively strongly. Dow 30 up about 0.6%, the SP500 up +0.75% and the Nasdaq up +0.75%.
Looking deeper into the NH/NLs, the New Lows on the NYSE dropped only marginally from 79 to 75, NH/NL Ratio 39%. That’s well below par. New Lows on the Nasdaq, despite the strong rise in the Index, went up from 92 to 98. NH/NL Ratio 25.5%. That’s poor.
The Australian market was up early in the day’s trading – up about 0.3%, but, at the time of writing, has fallen back to be down -0.1% (at 11.20 a.m.). BHP, however, is up strongly 0.95% and Rio up 0.86%. So the Mining Sector is holding up the market, XMM currently up about +0.9%. Gold Miners are up 1%.
It’s still early in the day.
Let’s see where it ends.
XJO down -0.51% on volume a bit above average. We’ve now had five days down in a row, and nine days down out of 10. Horizontal support is just a smidgin away. RSI.9 is at 21.2. That’s the lowest reading since 12 Dec. 2013. RSI.9 reached 14.6 at that time. That’s an extraordinarily low reading – very rarely seen. It resulted in the strong Santa Rally which followed. A reading similar to today’s was reached four days below the final low back in mid-December, 2013. So it is possible for the market to fall further before rebounding. But those mid-December, 2013 readings were extremely rare. Today’s fall was not particularly dramatic. Down only -0.51%, it looked like a nicely controlled fall. Volume was about 109% of the 20-Day Average Volume. That’s hardly the stuff of a climactic sell-off. Serious – yes – but not panic selling by investors. If this is in a serious decline, we could see much worse – maybe a -1% day on volume 130% of the 20-Day Volume. Back on the 12 December, 2013 we saw a -0.9% fall on volume 135% of the 20-Day Volume. That makes today’s action looking piffling.
We’ll have to wait and see.
This, however, still looks to me like we’re close to the end, in the short term.
In America: Nasdaq Composite -1.07%. New York Composite -0.02%. Russell 2000 -1.21%. Dow Industrials +0.26%. SP500 -0.07%. The Nasdaq was the strongest of these Indices. I mentioned in my Weekly Report that breadth in the Nasdaq was weak – the Index was being held up by a few big stocks. Microsoft is one of those – last night down -0.96%. The weakness in the R2K (Russell 2000) is of concern as this represents the Small Cap segment of the market – so that’s another indication that breadth is weak. The Big Blue Chip Index (Dow 30) was up modestly, while the Large Cap Index (SP500) was more or less flat. Other measures of breadth (besides the small caps) are the NH/NL Ratio on the NYSE and Nasdaq. They were both also very weak. NYSE NH/NL Ratio – 25.5% with New Lows solidly into “panic” sell mode at 79. Nasdaq NH/NL Ratio was also weak – 24.6% with New Lows at 92. Bulls retain some hope in the Blue Chips and Large Caps – both those indices saw solid intra-day buying. Here’s the SP500 Chart: On this chart we have two clear patterns. Long term, we have the rising channel, the lower support line aligns more or less with the 100-Day MA. This looks likely to revisited those. Shorter term, we have an expanding wedge. Again – this suggests the market will head lower. RSI.9 still isn’t very oversold – so there’s airspace below for further falls. On the plus side – this is OpEx Week – which is usually bullish. So we might see some upside. Today’s intra-day buying lends weight to that supposition. We need to see a solid up day tomorrow for this idea to be confirmed. The break below horizontal R/S is marginal. Today’s candle was a mini “hammer” (intra-day support) – so there are a few smarties buying into the current weakness. Commodities: CRB Index flat -0.02%, with intra-day buying. Industrial Metals Group -1.07%. Most of the components were down heavily with Aluminium -2% and -1.9%. Going against the trend was Copper flat at 0.00%. That’s an odd figure as Copper Futures down -0.68%. The Copper ETF, which tracks Copper Mining Companies, was down -1.2%. Iron Ore had a beaut +3.2%. That’s the biggest one day rise since March. This looks like the much anticipated counter-trend rally, the Iron Ore price was deeply oversold, so a counter-trend rally is not unexpected. The size of the rise suggests a scramble to cover shorts – so there’s probably more upside to come as momentum kicks in from the short-covering. With fundamental economic data coming out of China continuing to weaken, it’s unlikely that we’ve seen, long-term, the bottom in the iron ore price. The Steel ETF (which tracks companies producing steel) was up just a little +0.19%.
Precious Metals Group +0.27%. GLD +0.22%.
Australian Stocks in NY: BHP -0.84%. Rio +0.73%. Given the huge rise in the Iron Ore price, it’s surprising that Rio isn’t up more. It looks like the investors in the Miners aren’t too excited by the rise in the Iron Ore price – Mining Investors usually have a better idea of the longer term outlook. Westpac -1.39%. ANZ -1.19%. ANZ is now down over -7% in the past eight days. Some of that can be attributed to currency weakness – but not all. The move down is now looking extremely oversold, with an RSI.9 reading well below 20. Similar comments can be made about Westpac. Its RSI.9 reading is at 22.7. Not quite as bad as ANZ – but still extremely oversold. EWA -0.96%. Its RSI.9 reading is at an extra-ordinary 15.7. Money Flow Index has now fallen into the Buy Zone. Ozzie Dollar more or less flat -0.06%. So the fall in EWA overnight was following the -1% fall in the Australian market yesterday. After yesterday’s big fall in Australia, I’d expect today to have much less volatility. Nothing in the overnight market has occurred to change that view. Some opportunistic buying might come into the Miners on the back of the Copper figure and the Iron Ore figure – but don’t expect too much. BHP and Rio on the Australian market are both due for a technical bounce – so that might also add to upside pressure. Redbacka
XJO down -1% on average volume. Here’s the chart: Yep – the way I’ve drawn it – we’re nearly there. Just around the corner. But you never know, there could be a big fat guy in a yellow and silver jacket with a detour sign just waiting to point us into a side road. Damn those road works. :)
Anyway, hopefully there won’t be any high-vis vests looming up ahead. In which case – we’re close to the destination – this time around. RSI.9 at 24.1 is well below 30. That’s usually good for a bounce. The chart is also close to the bottom of an upsloping channel. Again – a little bit lower – and we should be good for a bounce. Adding it all up: Are we there yet? Yep – just around the corner. (Barring a man in a high vis jacket.)
Australian Market: Sector Relative Strengths.
Australian Market: Sector Breakdown
Australian Market. XJO – Monthly Chart
Australian Market. XJO – Weekly Chart
Australian Market. XJO – Daily Chart
American Market: Sector Relative Strengths.
American Market: SP500 Weekly.
American Market: Dow Industrials Daily
American Market: Nasdaq Daily
Australian Market: BHP – Daily
Summary and Conclusion
AUSTRALIAN MARKET:SECTOR RELATIVE STRENGTHS
This week the broad market index (XJO) was down strongly -1.21%. Four out of five days were down.
The chart/table above provides a 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) continue to be: Telecoms (104.07), Health (105.66) Industrials (101.94). In the sub-sectors. The three leading sectors last week were Telecoms, Health and Energy. All weakened this week, with Energy slipping from third to fourth place. Property (an industry sub-sector) weakened significantly this week. The weakest sector was Materials. But the Sector remains on Bull Status, so it might be getting to the lower end of its current down cycle.
The Sector Structure (based on the overall Bull/Bear Statuses) remained static this week. Despite the overall market dropping strongly, all ten sectors remain on Bull Status. (That’s quite different from America. See below.) The Status is determined by the relative positions of the 50-Day and 100-Day Moving Averages. If the 50-Day MA is above the 100-Day MA, the Sector is on Bull Status.
While there have been some changes in relativities, this remains a picture of a strong bull market. Just remember, this shows what is – and is not predictive. It’s a trend following tool.
This information provides an antidote against knee-jerk reactions to short term market fluctuations. Until the majority of the Sectors are on Bear Status, probably the market isn’t in much trouble, and short term fluctuations are simply part of normal stock market flux.
AUSTRALIAN MARKET:MONTHLY CHART – XJO
The XJO was down so far this month -1.69%. We’re now almost half way through the month.
The dominant pattern on the chart is the Rising Wedge.
MACD Histogram is sloping down and has been since November 2013. This month’s Histogram is now at its lowest level since August, 2012 when it first went positive. That was a leading indicator at that time. The MACD Histogram is now marginally above zero at 10.7. If it goes below zero it might again be a leading indicator – this time to the downside. If we get a drop below zero, it might be worth taking some defensive action.
At this stage, the trend remains up.
We’ll know the very long term trend has changed to bearish when the Rising Wedge and 20-Month Moving Average are broken to the downside. That does not appear imminent. If that does happen, however, this bull market might be over. We’ll have to watch carefully.
This is a big “if”, but if this month’s candle drop further, we may see a break of the Rising Wedge, and the formation of a three-candle reversal pattern. That’s usually fairly reliable.
Back in February-May 2011, we had a four-candle reversal pattern. That’s similar to the three-candle reversal pattern. The middle candles in the four-candle reversal patterns are both doji candles. In the three-candle pattern the middle candle is a doji followed by a big down candle.
That four-candle pattern back in early 2011 led to the big fall in mid-2011. The market took about a year to recover from that fall.
So, if this month does deteriorate, we could be seeing the end of this bull. But – at this stage – it’s just speculation – just a warning sign to be aware of.
AUSTRALIAN MARKET:WEEKLY CHART – XJO
The XJO finished the week at 5531.1 , down -1.21%.
MACD Histogram. Above zero. Positive but falling.
MACD. Above zero – positive but flat.
RSI.9 is at 50.7. Marginally Positive.
CCI.14: +26.07. Positive but falling.
The medium term trend remains up despite three weeks of losses. Indicators have turned down and have plenty of air-space below for further falls.
Momentum has slowed as indicated by the MACD flatlining. Slowed momentum usually means a big move is coming – but there’s no way of knowing for sure which way it will break.
Any pull back in the past two years has found support at the 50-Week MA. Odds are increasing that we’ll see a pull-back – but it is likely to see support once again around the 50-Week MA. That currently, more or less, coincides with the support line of the Rising Wedge and horizontal support at 5437.3. Triple support is powerful stuff – so I’d expect that to hold. But, if it breaks, we could see some serious falls.
AUSTRALIAN MARKET:DAILY CHART – XJO
The big “needle” of 17 days ago marks a top in the market. Since then the chart more or less went sideways until early September, when it formed a three-candle reversal pattern. (I mentioned this pattern in the discussion on the monthly chart.)
The chart is now down to horizontal support, and on Friday showed intra-day buying come into the market.
MACD Histogram. Below zero. Negative.
MACD. Marginally above zero. Neutral.
RSI.9 is at 32.2. Oversold.
CCI.14: -179.1. Oversold but may be developing a positive divergence..
The chart is now down to support and oversold. It might just bounce here.
The chart has also reached the lower Bollinger Band – that’s also another possible support level.
Everything points to a bounce.
If this does fall further, then we have three major support levels nearby, the 100-Day MA, horizontal support, and an oblique support line. Again – powerful stuff.
AMERICAN MARKET:SECTOR RELATIVE STRENGTHS
This is similar to the charts above for the Australian market.
The SP500 was down significantly this week, -1.1%. That’s not a surprise as the market had been up five weeks in a row. Six weeks in a row is uncommon, seven up is rare.
Statistics in these tables above are beginning to show some deterioration in what was a very strong bull market. Now three out of nine Sectors are on Bear Status (Energy, Industrials, Utilities). The two biggest sectors, however, Technology and Financials, remain on Bull Status. (They represent about 35% of the American market, which is much more balanced than the Australian market where Financials alone represent about 40% of the market.)
Recently, all four of the major indices were on Bull Status. Now two out of the four are on Bear Status. The Dow Jones Industrial Average is now on Bear Status. Care must be taken interpreting these rather crude assignments. The Chart of the Dow Jones Industrial Average is sitting well above the 50DMA and the 100DMA, so this may simply be an indication that the Index is in a trading range.
Only two sectors are sitting below par (below 100) on the Relative Strength Readings. Those sectors are Energy and Utilities. This is still a bullish picture, but there are signs of deterioration.
AMERICAN MARKET:SP500 WEEKLY
This is an amazing graph. Buy-the-dip for two years. Every time the chart drops back to the oblique support line, buyers come into the market. Sometime that process will end. Just when is anybody’s guess.
Technically this is looking weak. We have a three-candle reversal (fairly reliable) and a major negative divergence on the MFI. Other indicators are also showing negative divergences.
So – we might be seeing the start of a pull-back, but until the oblique support line is broken convincingly to the downside, we have to stay with the trend. This is a Bull Market.
AMERICAN MARKET:DOW INDUSTRIALS DAILY
I mentioned earlier that the Dow Jones Industrial Average has moved off Bull Status and on to Bear Status. Here’s the chart.
You can see how the 50-Day MA has crossed below the 100-Day MA, but the Index chart is well above those two Moving Averages. At this stage, this doesn’t look particularly serious. Bear Status doesn’t mean that the bottom will fall out of the market – just a warning to be cautious. A bear market is often characterised not by continuous falls, but strong swings in both directions without an ultimate upward progression.
The Index could easily oscillate around the Moving Averages without doing any serious damage. But a break below the lower edge of the trading range could be serious.
Most of the indicators have plenty of air-space below, so a move down could easily occur. The CCI is approaching -200, so some sort of consolidation might occur in the short term.
The chart has formed a small double top, which also suggests we’ll see some more down side.
AMERICAN MARKET:NASDAQ DAILY
The Nasdaq is the strongest of the major indices I watch on the American market. Relative Strength on the Nasdaq is at 104.6 while the SP500 is at 101.8. That’s a considerable premium.
The Nasdaq has been in consolidation for the past three weeks. It was overbought but the consolidation has been working off those readings without any major falls.
The Nasdaq has been making higher highs consistently in the past six months. The highs in March, July and September are successively higher than the previous high.
But when we look at the Nasdag Cumulative Advance/Decline Line, the Index has been making successively lower highs. The high in this index occurred in March. That corresponds with the high in the Nasdaq in March. Since then NAAD has made successively lower highs in July and September. While the Nasdaq has been consolidating at its highs in September, the NAAD has been falling. The Index has been going higher on fewer and fewer stocks.
The Nasdaq is dominated, like the XJO – ASX200, by a few big names, e.g., Apple, Microsoft, Google, Intel. Apple and Microsoft make up about 20% of the Index. (In Australia, Commonwealth Bank and BHP make up nearly 20% of the Index). If the broad base of the index is falling away, as is happening now, it only takes drops in a couple of the big names for this index to fall heavily.
AUSTRALIAN MARKET:BELL-WETHER STOCK – BHP DAILY
For almost a year, BHP has oscillated up and down in a fairly predictable manner within a wide trading range.
It is now getting back to the lower edge of the trading range.
The chart seems to be forming a base close to the long term support level.
Indicators are reaching into extremely oversold levels. The RSI.9 was at 22.7 is well below 30. TSI is below -25. A turn up around here can be expected soon.
A year is a long time for a trading range. The question now is whether or not BHP will maintain action within the trading range. Horizontal support around $35.20 has been amazingly consistent. Rarely do we see such consistency in the market – but BHP does often perform in highly unusual ways.
A bounce in the near future seems a foregone conclusion. But – if that very long, big solid horizontal support is broken to the downside – we could see a move by BHP down into the low 30s.
BHP is strongly dependent on the Chinese market for its health, that economy has big effects on the price of Copper and Iron Ore, both big components of the BHP profit structure. Iron Ore in particular is now at multi-year lows. If it falls further, that just might be enough to make BHP break major support.
Every trader worth their beer money would be aware of the current technical structure of BHP. Most would be expecting a bounce. Rarely does the market reward the most people. Expect the unexpected.
SUMMARY & CONCLUSION
First, a summary of major world markets: Australia down -1.21%. German DAX Down -0.98%. London down -0.7% SP500 down+-1.1%. Japan up +1.78%. China88 down -1.31%. Emerging Markets ETF down-4.49%. GLD (ETF for US$ Gold) down -3.01%. Copper Futures down -1.99%. The only Index to buck the bearish trend this week was the Japanese Nikkei.
This report tends to focus on Australia (naturally) and America. What happens in America affects all other markets. It is difficult to imagine we can have a bull market without a bull market in the U.S. – and vice versa. There will be variations in the correlation. Our market looks likely to bounce this week. A lot of intra-day buying occurred on Friday, so the bottom feeders are moving in, buying into weakness. They are sometime searly – but usually right as time goes on.
I’m not so optimistic about America – although it is Options Expiry Week coming up and it has a strong bullish bias. So we may see upside in America as well. Medium term, America looks likely to move down. Cracks are showing with both the big blue chips (Dow Jones Industrials) and the Small Caps (Russell 2000) on Bear Status. That doesn’t mean a crash – but more sideways action rather than upside action is likely. It could also mean considerable downside. No way of knowing. The weakening of the Advance/Decline Line on the Nasdaq is another cause for concern in the medium term. How much longer can the Nasdaq continue heading north if fewer and fewer stocks are participating in the rally? Of course, the A/D Line might improve – but at this stage the trend is down.
But, nothing much has dented the bull market in America for around two years. Every dip is bought. So we might see a dip – but the expectation is that it will be bought. While interest rates remain extremely low, and stock market earnings have a differential advantage, it’s difficult to see why the market should fall substantially.
Australia can dislocate from America – at least for a short while. It has done that over the past three weeks or so. BHP rang a loud bell at the top of our market. But now, BHP is back to long term support. So a bounce in BHP is due – that’s a positive for our market. That, however, is a technical assessment. While the Iron Ore price continues to deteriorate, it’s difficult to see how our Miners can return to being bullish. Any bounce in BHP could be short lived. There are plenty of people around now thinking that the Iron Ore price can’t go much lower. (See Michael Pascoe in the Fairfax press this week.) The long-term chart for Iron Ore, however, looks to me like a classic “bubble” chart. (Check out the classic bubble chart by Dr. Jean-Paul Rodrigue.) Other well-known charts to follow this “bubble” pattern have been 2000 dot.com bubble, 1980 Gold/Silver bubble, late-2000 financial crisis, Gold/Silver bubble in 2011, Japanese Asset Price Bubble 1989. Going back further in history: 1929 Stock Market bubble, Tulip Mania, South Sea Company, Mississippi Company. Given this sort of history, it’s difficult to be bullish in the medium/long term about iron ore and our Miners.
Turning to prediction (a hazardous occupation) I think we’re likely to see some upside this week. Technically, the Oz market is due for a bounce, and America has OpEx Week coming up. FOMC occurs this week – that could throw a spanner in the works.
For daily updates – check http://redbackmarketreport.wordpress.com/
Nasdaq Composite -0.53%. New York Composite -0.59%. Russell 2000 -1%. Dow Industrials -0.36%. SP500 -0.6%.
The three day action on the Russell 2000 Tuesday-Thursday looked positive, but that was blown away on Friday reversing Thursday’s bullish action. New York Composite, Dow Industrials and SP500 all look like they’re slowly sliding lower. Slow Slides tend to accelerate, and that is what appears to be happening now. Four out of the five major indices are now below their 20-Day MA. Nasdaq Composite is the only exception. AAPL has had a modest rebound after its presentation day on Tuesday. Its range is narrowing, so the odds increase that the run up is ending. If AAPL turns down, so will the Nasdaq (probably). And if that happens, the full hand of indices below their 20-Day MA will be complete. The slide down is likely to accelerate.
Here’s the detailed chart for the SP500:
SP500 has had a marginal break below horizontal support. Today’s candle is a bearish engulfing candle. The Index is below its 20-Day MA. Indicators are still falling and could fall further without triggering “very oversold” calls. Further downside seems likely.
CRB Index down -0.31%. Industrial Metals Group -0.5%, and under intra-day selling pressure. Copper Futures up 0.45%, but it was an inside day, so probably doesn’t mean much. Precious Metals Group -0.53%. Down five days in a row. GLD down -0.91%. Also down five days in a row. I thought yesterday that the action in GLD was promising for a bounce, but not yet. There’s no point in jumping into the Goldies until we have a reasonable set-up. But a bottom is very, very close.
Oz Stocks in NY:
BHP -0.03%. Rio -0.38%, and broke a three day rally. Westpac -1.9%. ANZ -1.8%. EWA -1.07%. Ozzie Dollar -0.74%. Bank Stocks have been smashed in recent days. They’re now very oversold. Miners seem to be making an effort to base. A rally in the Ozzie stocks might be close.
Interesting development in Brazil. EWZ (ETF for Brazil stocks on the NYSE) down last night -4.3%, and down about 12% in the past eight days. Brazil is in the middle of a presidential election campaign. Odds are swinging in favour of the incumbent – which the investment community doesn’t like. Add to that recent woes with the Iron Ore price, falls in energy, banking stocks falling sharply, and a falling currency – and you have a complex set of conditions affecting stock prices. That’s all very similar to Australia – except we don’t have an election looming.
It’s amazing how readership of this blog rises when the markets get a little rocky. Readership spiked on Wednesday and Thursday – well above anything in the past three weeks. That’s a contrarian sign that the pull back is close to being over. In America: Nasdaq Composite +0.12%. New York Composite +0.03%. Russell 2000 +0.63%. Dow Industrials -0.12%. SP500 +0.09%. Most of the Indices finished more or less flat. The Small Caps (R2K) were relatively strong – a good sign. Dow 30 and SPX both showed solid intra-day buying after early weakness. The Dow 30 and SPX in four out of the past five days have shown solid intra-day buying. Another positive sign. Here’s the detailed SP500 Chart: The intra-day buying in the SPX can be seen in today’s candle – a long lower tail and a gold body. The Index dropped on opening then recovered to finish above the opening level. It continues to hold at horizontal support. If it breaks that, we’ll probably see much lower prices. But, at this stage, the action remains positive. Indicators, particularly MACD Histogram and TSI, suggest more sideways action, or, perhaps, some downside. Although the R2K was strong today, the NH/NL Ratios on the NYSE and Nasdaq remain weak. NYSE NH/NL 49.4%. Nasdaq NH/NL 60%. They both improved a little on the previous session – but we need to see better figures in the NLs. Commodities: CRB Index down -0.31%, but showed intra-day buying. Industrial Metals Group was hard hit -0.77%, but it is now down to support, so we might see some relief. Copper -0.5%. Iron Ore -0.4%. Precious Metals Group -0.65%. GLD down -0.66%. Here’s the GLD chart: It looks like the “smart money” ran the stops on the Gold price set just below horizontal support, then bought up big time. Although GLD was down -0.66% on the day, it rose +0.6% off its lows. That’s a solid move up intra-day. I’m tempted to say that’s a short term bottom, but we need confirmation of a solid up day. Technically, this looks ready for a strong bounce. It’s very oversold, and Money Flow Index is showing a positive divergence. This is beginning to look like a strong possibility. Oz Stocks in New York: BHP down -1.11%. It had strong intra-day buying (up +0.6% off its lows), as it has the previous two days. It looks to me like there’s plenty of buying into weakness. We still need to see a strong up day to confirm. Rio up +0.13%. It’s been up the past three days in a row – despite a falling iron ore price. Go figure. Westpac -1.46%. ANZ -1.63%. That follows on from weak Bank prices in Australia on Thursday. EWA -1.62%. Ozzie Dollar -0.57%. Banking stocks and EWA were down much more than can be expected given falls yesterday in Australia and in the Ozzie Dollar. Sentiment seems to be turning against the banks. I don’t think we can expect the Financials to save the Australian market today. So it might depend on buying in the Miners. I’m expecting buying to come into the Miners. Those figures for Rio in America are promising.
Given the relatively positive finish in America, I’d have to think our market would be up at the opening, but if we get fresh selling in the banks, we could finish on the negative side again today.