XJO up 0.6% on above average volume. The Index was up higher earlier in the day. The high of the day occurred a little before 1.00 pm. The Index declined steadily until the end of retail trading. The after market auction kicked higher – but that can usually be discounted. So the 0.6% final figure is a little flattering. The fall from the high of the day to the close was -0.4%. The after market auction was an embellishment on the day’s figures.
Here’s the chart of the XJO:
The breakout on today’s action is undoubted.
The chart is now overbought with the RSI at 72.2. That reading is the first time the RSI has been above 70 since late April – and that led to a significant pull back. Overbought readings are notoriously unreliable – in the immediate future. But are reliable guides – for non-investment. Invest in an overbought market at your peril. Wait for the pull-back. It will come. Tomorrow? Who knows. But it will come.
I now have several breadth indicators that are getting into regions which usually suggest downside movements. RSI on the Cumulative AdvVol/DeclVol Line is now stretched upwards at 93. (It can’t go above 100). The last time it got to this level was in early January, 2014. That led to the significant pull back of around -5% that finished in early February, 2014. Tomorrow? Who knows. But soon.
SP500 +0.5%, Dow Industrials +0.36%, Nasdaq 100 +0.7%, New York Composite +0.53%, Russell 2000 +0.83%, Transport +1.13%.
Dow 30 and SPX up but still in consolidation mode. NDX has opened up a new high. The two broad market indices (NYA and R2K) both improved technically. Trannies up to a new high. Volume was up a little. All’s right with the world.
Here’s the chart for the SP500:
The consolidation in the SPX is clear in this chart. It’s lasted about three weeks so far. The upper boundary is marked on the chart, the lower edge is the pivot of 10 July. Technical indicators suggest this could be headed down – but might only be an artefact of slowing momentum. Breadth (NYA and R2K) are also negative. Wait for the break. After three weeks of slow motion, a lot of energy is being built up.
CRB down -0.37%. Industrial Metals breaking out +0.7%, but showing some intra-day selling. The Copper price actually fell a little -0.1%. That’s where the selling occurred. All the other IMs (Nickel, Aluminum, Lead, Zinc) were up strongly. Precious Metals -0.5%. US$ Gold -0.47%. GLD is holding above the 50/100 Day MAs. So this might be OK. Recent action in Gold has been affected first by comments by Janet Yellen (gap down) then events in the Ukraine (safe haven buying). It’s a bit hard to read at the moment. I don’t have an opinion.
OZ stocks in NY:
BHP +0.76%. Rio +1.88%. (Both are nudging overhead resistance). Westpac -0.06%. ANZ +0.3% (Both are in sideways consolidations.) EWA +0.71%. At the top of its range – that’s been in existence well over three months.
Ozzie Dollar +0.2%.
There’s nothing in those overnight figures to suggest negative action in Australia today.
Apple Inc. reported after hours. A bit positive (beat earnings per share), a bit negative (revenue was lower than expected). In after hours trading AAPL is currently down moderately -0.55%. That might be just enough to put a damper on proceedings today – but tech is not a big sentiment factor in Australia.
The XJO was up a tad today, +0.1%. Volume was a lot higher than yesterday, but still below average.
Today’s candle was inside the range of the previous day. Not a lot happening. That went along, more or less, with the script I set out this morning. Nothing much.
Positive action today was basically located in the Miners. Here’s the Daily Sector Performance Chart:
Miners up +0.8%. That’s no surprise given the good rise in the Industrial Metals last night in America, up 1.43%. One could say, that result from the Miners was a disappointing result given the rise last night in the Industrial Metals. Miners usually leverage off the underlying metal price.
Here’s the Mining Index Chart:
This chart is set up for a fall. The Index is overbought. Cci is showing a possible negative divergence. Anybody already positioned short would be feeling comfortable.
Against all of that? XJO up just 0.1% today. Nikkei +0.84%. Shanghai +1.02%. Hong Kong +1.69%. Those are strong numbers. How come Oz went against the prevailing Asian trend today? Well, the Miners, dependent on Asia, were in sync. But the rest of the market wasn’t – so it has to be related to domestic issues. Too hard for me, at this stage, to work it out.
But – Oz has been up 8 out of the last nine days. That’s a bit stretched to the upside. The one day down doesn’t even register to two decimal points on the downside. So basically flat. And trading recently has been very odd – to say the least.
Despite promising leads from the rest of the world (Europe is currently up strongly), America is often perverse. We’ll see how America goes later tonight.
SP500 -0.23%, Dow Industrials -0.28%, Nasdaq 100 -0.15%, New York Composite -0.26%, Russell 2000 -0.43%, Transport -0.29%.
Generally, a lack lustre day with indices down moderately. Volume was low. The two broad measures are the weakest. NYA is below the 20-Day MA. Russell 2000 is below the 50-Day MA. That doesn’t leave me with a feeling of confidence.
Here’s the detailed chart for the SP500:
The SP500 is in consolidation mode. Momentum has slowed. MFI suggests the next move is down. But until the pivot of 10 July is broken to the down side, we’ll have to wait. Of course, this could easily break overhead resistance and extend this extraordinary bull market.
CRB Index +0.34% – after being down at the opening. Industrial Metals +1.15% and recouped all of Friday’s losses plus some extra. Precious Metals +0.38%. US$ Gold +0.17%. Copper +0.75%.
Oz Stocks in NY:
BHP flat 0.00%. Rio flat -0.11%. Westpac +0.03%. ANZ -0.57%. EWA -0.41%. Ozzie Dollar -0.15%.
Yesterday, the Australian market was range trading, it finished up just a little. There’s nothing in overnight markets to suggest much change today.
XJO up +0.15%. Volume was very low – about 80% of the 20-Day Average. Volume was steadily rising last week, but today saw volume collapse. It was the lowest of the past seven days. There simply wasn’t any commitment in the market. After the initial rise – expected after strong data from America, our market just chopped, chopped sideways all day. Nothing much happened today – except day traders trying to make a buck.
Action for the past five days has been highly unusual. Lots of long tails on candles. Today was no exception – but not as extreme as we’ve seen recently. But today’s candle finished below the mid-line – that suggests a mild bearish bias.
Here’s a few sector charts:
Consumer Discretionary could be setting up an inverse H/n/S pattern. If it plays out, it could be bullish for how entire market – so long as Financials and Materials cooperate.
There’s no compelling case here for either bullish or bearish action. The chart is in a horizontal consolidation. This could go either way.
The chart is at resistance. That’s a likely stopping point. But the pull-back so far isn’t decisive. I wouldn’t be surprised to see a bit more topside. But there’s not a lot more in this. Overbought and at resistance, I have to think the odds lie to the downside.
Australian Market: Sector Relative Strengths.
Australian Market. XJO – Monthly Chart
Australian Market. XJO – Weekly Chart
Australian Market. XJO – Daily Chart
Australian Market. Advance/Decline Line
American Market: Sector Relative Strengths.
International Markets: America – SP500 Weekly
American Market: Small Caps Daily
International Markets: Investor Sentiment – America
International Markets: China Daily
Summary and Conclusion
SLF – Weekly
STW – Weekly
AUSTRALIAN MARKET:SECTOR RELATIVE STRENGTHS
This week the broad market index (XJO) was up +0.82%. Despite that rise, the Sector Structure deteriorated. Last week, three sectors were on Bear Staus, the previous week one sector was on Bear Status. This week, we now have four sectors on Bear Status. Sectors on Bear Status are: Consumer Discretionary, Consumer Staples, Health and Materials. That’s a concern but may be explained by the market being in a sideways consolidation.
The three strongest sectors, as measured by RS – the distance of the stock above/below its 100-Day MA, last week were: Utilities (RS 104.5), Telecoms (102.6) and Info.Technology 102). This week the three strongest sectors, as measured by RS, are: Telecoms (104.2), Materials (102.8) and Energy (102.4). Materials, although relatively strong, remains on Bear Status – so it may be in a big trading range. (The Relative Strength reading is a shorter time frame than the Bull/Bear Status.) Recent strength in the Resources Sector is, however, undeniable.
In the “other” Sectors, Gold Miners (XGD) remains the leader but well off the RS >40 which we saw earlier in the year. Both XGD and XPJ (Property) often have lives somewhat uncorrelated to major market moves.
Many sectors are only barely above the RS tide-line of 100. It wouldn’t take much to sink this market.
For medium term, Asset Allocations, adjustments might be made at the end of each month, so at this stage no adjustments would be made.
As an additional filter – ensure that the XJO is in a bullish trend – see the Monthly Chart below. Go to cash if the Index turns bearish.
AUSTRALIAN MARKET:MONTHLY CHART – XJO
The XJO is currently up +2.52% this month – with just under two weeks to go.
The large dominant chart pattern is the Rising Wedge marked on the chart. Being a monthly chart, the Index could conceivably remain within that wedge for months to come. It is essentially a bearish formation.
The other big pattern to watch is the four-month old Flag. Flags tend to break in the direction of the current trend – which is up. So it is quite conceivable that the Rising Wedge could break to the upside. Currently, XJO is in a sideways consolidation.
Indicators are showing potential bearish divergences – which supports the notion of a move lower. We’re getting into interesting territory.
At this stage, the trend remains up. We’ll know the very long term trend has changed when the Rising Wedge and 20-Month Moving Average are broken to the downside. That does not appear imminent. That should also be accompanied by a break by the MACD Histogram below its zero line. It is currently holding just above its zero line MACD Histogram has been on a bullish break above zero since September, 2012.
AUSTRALIAN MARKET:WEEKLY CHART – XJO
The XJO finished the week at 5531.6, up +0.82%. The Index remains below a shallow short term oblique resistance line but still above oblique support from June 2012. This sets up a Rising Wedge Formation. The Index has been above the 50-Week MA since August, 2012.
The chart is in a consolidation close to the top of a Rising Wedge. This can go either way. The chart is now close to recent market highs.
MACD Histogram. Marginally below zero. Neutral.
MACD. Above zero – but showing a negative divergence
RSI.9 is at 62.2. Positive
CCI.14: 144.9. Mildly overbought.
True Strength Indicator. 15.5. Above zero. Positive.
I don’t normally refer to the TSI (True Strength Indicator). Looking at it and the MACD you can see that they have a very similar profile, but the MACD is more complex and “noisier”. The other main difference is that TSI is a bounded indicator with tops and bottoms at +100 and -100. So it combines characteristics of both the MACD and the RSI.
The TSI is showing a formation of higher lows and lower highs – that’s typical of a Rising Wedge formation on the primary instrument, in this case, the XJO chart on the upper pane. If this breaks below the oblique support line shown on the graph and the zero line – we’d have a bear signal.
AUSTRALIAN MARKET:DAILY CHART – XJO
The Index has clearly been in a trading range for many weeks. The past four days’ candles are distinctive – although trending up they show lots of tops and tails – some very wide ranging. There’s a battle being waged at this level – trying to break out topside of the trading range. So far, the bulls haven’t succeeded, but they’re doing a little better than bears.. But this is trench warfare – give a little, take a little, from both sides. Usually, break-outs are swift and sure. So far, we’re not seeing that sort of action.
MACD Histogram. Above zero. But flat. Neutral.
MACD. Above zero. Positive.
RSI.9 is at 62.9. Positive.
CCI.14: +56.2. Falling away from +100 – mildly negative.
The CCI seems to be setting up a negative divergence. It is often a leading indicator.
I’m not confident that the market can break out – and, even if it does, it then has to contend with the longer term Rising Wedge. That’s a little above the current action – so further short term upside could be on the cards.
AUSTRALIAN MARKET:ADVANCE/DECLINE LINE
The Advance/Decline Line is a cumulative running total of Advances minus Declines on the Australian Stock Exchange. It’s usually conceded that bull markets are accompanied by good market breadth. A negative divergence usually suggests a structural weakness in the market. Positive divergences are usually indicative of structural strength in the market.
The A/D Line began declining in mid-March and continued declining into the end of June. At the same time, the XJO pushed higher and for the past three months or so has been in a trading range. So the strength in the XJO wasn’t being confirmed by the A/D Line. Since the beginning of July, both the XJO and A/D Line pushed higher. That push higher by the Index was being confirmed by the A/D Line. That’s different from the way things have been from early March to mid-June. A positive.
This week the A/D Line has pushed higher as the XJO pushed higher – confirming the bullish tone of the market. I see nothing wrong here.
The A/D Line is not a good timing device – but provides additional evidence about the structure of the market. This is promising.
AMERICAN MARKET:SECTOR RELATIVE STRENGTHS
This is similar to the charts above for the Australian market.
The Americans are in the grips of a strong bull market. All Sectors show Relative Strength above +100 and all Sectors are showing Bull Status Flags.
This week the SP500 was up +0.54%. Performance among the sectors was patchy. Improvers were: Consumer Discretionary, Consumer Staples, Financials, Materials, Technology. Negative performance came from Energy, Health, Industrials, Utilities. Ratio: 5/4.
The blue chip and large cap market Indices (Dow 30, Nasdaq 100 and SP500) are all on Bull Status and Relative Strengths are all above +100. In contrast, the Small Cap Index (IWM – the tracking Index is shown) is also above 100 – but only just. This divergence may be a concern – since it suggests that breadth is deteriorating in the American market.
INTERNATIONAL MARKETS:AMERICA – SP500 WEEKLY
The SP500 was up moderately +0.54%. The weekly candle was inside the range of the previous week – this may have modest bearish implications – but nothing much is bearish in this market.
The True Strength Indicator shows just how strong this market has been. It hasn’t been below its mid-line (zero) since the beginning of 2012 – over two and a half years. Since early 2013, the Indicator has been sitting in overbought territory (above 25) with must two little dips below that area. The 50-Week MA has been above the 100-Week MA since May 2012. Extraordinary.
Since the big correction in 2011, any dip has been bought. Early in the bull run these dips were larger (around 7%) than dips later in the bull run. This has resulted in a narrowing of the oblique support and resistance lines. So we have a long thin Rising Wedge.
Money Flow Index, since early 2012, has crept up into overbought regions – and a pull back soon after has occurred. But they don’t last long. MFI is once again very high – the highest since early 2012. But that doesn’t mean a pull-back is imminent. That early 2012 reading on the MFI didn’t translate into a pullback for six weeks – and a negative divergence had to set up before we saw a pull-back.
This market is a prime example of the adage: Overbought gets more overbought. (Until it doesn’t.)
INTERNATIONAL MARKETS:AMERICAN SMALL CAPS
INTERNATIONAL MARKETS:INVESTOR SENTIMENT – AMERICA
Each week the American Association of Individual Investors (AAII) conducts a simple survey of members to discover their bullish/bearish/neutral attitude to the market. Because of the data collection method it tends to lag the market, but does help to give a view of how investors are feeling. Extreme levels of bullishness tend to precede market tops.
It’s not a great timing device but adds a further element to the our understanding of context.
I’ve shown a chart of the Net Bull-Bear Sentiment. Readings above 30 can be considered extreme. The last time we saw such a reading was at the end of 2013 – towards the end of the Santa Rally. The market topped on 2 January – and then cascaded down for the next month. That was marked by extreme pessimism in early February – and the market rose.
Investor Sentiment has fallen a little in the past week. (This data tends to lag because of collection procedures.) It is neither extremely high or extremely low. It’s not telling us much. So there’s no reason to believe that Investor Sentiment is extremely bullish – which usually comes before a significant fall. Why? If everybody is extremely bullish – then probably everybody has already bought – so there’s nobody left to buy – so the market falls. Readings of above 30% are needed for that to happen.
CHINA – DAILY
The Chinese market continues to frustrate. It’s in No Trend mode. The chart has been in a horizontal channel for about a month. The Support/Resistance lines of that channel have been in existence going back to early 2014. So, even if we see a break out of the channel, either up or down, it could be a false signal. Frustrating.
A break by the 50-Day MA above or below the channel might provide long-term direction. Until that happens. Wait.
(China88 is an index composed of the biggest stocks on the Shenzen and Shanghai markets.)
COMMODITIES:COPPER FUTURES WEEKLY
Copper is one of the most important Industrial Metals and is often seen as a proxy for world economic conditions, particularly emerging economies which are engaged in infrastructure building and new residential housing.
It’s also an essential indicator for the health of the Australian mining industry which supplies much raw material to emerging economies, particularly China, the largest of the emerging economies.
Copper topped out in early 2011 – at much the same time as our Mining Index. The correlation is clear.
Since early 2012, whenever Copper gets up around the 100-Week MA (blue dashed line), it has reverted to the down side.
The past three weeks’ action is far from encouraging. The Chart hit dual resistance (100-Week MA and horizontal resistance) and created a bearish three-candle pattern. Big candle up, indecisive narrow-range doji candle, big candle down. Bulls still have some hope as the chart is now sitting on a horizontal support line and the 50-Week MA. A break below those, and bulls can kiss this goodbye. Given past history, the 100-Week MA is the strongest influence on this chart.
Further falls and our miners should also fall – for at least a few weeks.
SUMMARY & CONCLUSION
The Australian market was up this week: XJO +0.82%. American SP500 up +0.54%, but the small caps down -0.76%, suggesting structural weakness in that market. China up +1.07%. German DAX up +0.56%. Japanese Nikkei up +0.34%.
Events in the Ukraine and Gaza temporarily sent global markets down, but they quickly recovered on Friday – the rapidity of that recovery is bullish.
The American market has been in a long-term bull market for over two and a half years. There’s no indication yet that this is about to change. The only niggling doubt lies in the breadth of the market as measured by the small caps, which are weaker than the blue chips and the large caps. If the small caps weaken further, that could signal the start of a significant retracement or even a full-blown correction. But anybody penning an obituary for the American market would be premature.
Looking at long term trends, our market has been going sideways for months. Recent action on the Advance/Decline Line is supportive of a move up. The Americans are up, the Chinese may be forming a solid base – but that is still to be proven.
The fate of our market could lie with the direction taken by Industrial Metals. Copper is the most important of those. Copper on the medium term chart (weekly) is looking bearish. Further break-down should see big falls in our Mining Sector in coming weeks. I’ve been expecting our Miners to have a good second half of the year. I haven’t dimmed that expectation, but we always have ups and downs. Any downside now, I would think, is a buying opportunity.
While the American market has been trending steadily higher in the medium/long term, Investor Sentiment hasn’t reached outlandish (optimistic) extremes. Usually a significant retracement in the market is preceded by “irrational exuberance”. We haven’t seen that yet. So the American market continues to climb its “wall of worry”.
For daily updates – check http://redbackmarketreport.wordpress.com/
ETF: SLF – WEEKLY
SLF is the tracking stock for the Property Sector. This week it was up +0.9%. The stock remains close to overbought. The long term trend is up. This could easily get to the resistance of the May, 2013 highs before we see any significant pull-back.
Late June was ex-dividend week. According to the Sydney Morning Herald, SLF Dividend Yield is 5.9% – that’s a healthy jump from the previous 3.6%. Dividends are paid quarterly. The next ex-dividend date is late September. Dividend in the last quarter was .3251 per share.
(SLF is the Exchange Traded Fund which tracks the performance of the Property Sector on the Australian stock market.)
This week STW (tracking ETF for the XJO) was up +0.86% – more or less in line with the XJO. The stock remains on Bull Status. The 50-Week Moving Average provides support. That would have to break lower for any significant falls to occur.
It is currently consolidating between the 50-Week MA and horizontal resistance. I can see no reason to sell out of this if you’re already positioned. We’d have to re-assess if we get a significant break of the 50-Week MA.
Dividend for STW is 4.4%, that’s up from 3.9%. Ex-dividend date was 26 June.
Dividend for the past six months is 0.985 per share. Next ex-dividend date is late December.
SP500 +1.03%, Dow Industrials +0.73%, Nasdaq 100 +1.6%, NY Composite +0.89%, Russell 2000 +1.59%, Transport +1.28%
Yesterday I had some general comments on the terrible events in the Ukraine and Gaza and how they might affect markets. I said something to the effect that this bull market is unstoppable. I must admit I thought we’d see a couple of days of slowing – but this market, at least in America, came roaring back today. The Australian market yesterday pre-empted that move after opening well down, it rose for most of the day and finished well on the positive side. Now, this bull market will stop – some day. But I see no indication of it just yet.
But the Europeans are not looking so chipper. Here’s a group of major international shares in NY:
Australia, Canada, Mexico, and the Asians are still holding up well. The Europeans are weak. With the exceptions of the UK and Spain, the charts show the 20-Day below the 50-Day. For trend followers those x-overs are bearish. The only other two, UK and Spain, a bearish x-over looks imminent.
To sum up: U.S. Australia, Canada, Mexico and Asian stock markets remain strong. Europeans weak. The notion of correlated world markets has become unstuck. Who’s right? Which way will the strength/weakness flow? Europe is arguably as big an economic unit as America. Followed by China. Does Europe pull everything down, or U.S./China pull everything up? Or will we now be looking at a bifurcated world? I don’t know. But we’ll watch with interest as this plays out.