U.S. OVERBOUGHT. OZ OVERSOLD. Weekly Report, week ending 21 November, 2014

November 23, 2014 Leave a comment


1.Australian Market: Weekly Sector Relative Strengths.

2.Australian Market. XJO – Monthly Chart

3.Australian Market. XJO – Weekly Chart

4.Australian Market. XJO – Daily Chart

5.American Market: Sector Relative Strengths.

6.American Market: SPY Daily.

7.American Market: Sentiment

8.American Market: VIX Daily

9.Summary and Conclusion


Oz Sector Strength

Oz Bull Bear

This week the broad market index (XJO) was down strongly -2.75%. Five days out of five were down

The chart and table above provides a short/medium term and a long term view of Market Sectors. Relative Strength provides information on how each Sector is travelling in the short to medium term. The Bull/Bear Status provides a longer term view of the Sectors.

The three strongest S&P sectors, as measured by RS (the distance of the stock above/below its 100-Day MA) are: Telecoms (103.49), Consumer Discretionary (100.03). Health (104.79).

The two weakest sectors were Materials and Energy. XMJ 90.14% and Energy 89.84%.

Weakness continues to show up in Sector Structure (based on the overall Bull/Bear Statuses) . If the 50-Day MA is above the 100-Day MA, then the Sector is on Bull Status. And reverse for Bear Status.) This is a lagging indicator. If the market has a strong up-thrust after a switch to the Bear Status, then that switch can usually be ignored. Only one Sector is on Bull Status: Health. All four Major Indices are on Bear Status.

We now have a picture of a market which is extremely weak. It’s often in such situations that contrarians look for trading opportunities. Longer term investors might continue to be cautious only taking positions in the very strongest sectors.


xjo Monthly

We only have one week left in this month. Currently it is looking ugly, down -4.02%

The bearish break below the rising wedge continues to exert influence.

The chart is again below the 10-Month Moving Average and below the 20-Month Moving Average.

If the 10-Month MA breaks below the 20-Month MA, we could be looking at another GFC type bear market.

At this stage, all the indicators are turned down and showing a bear market profile.  Long term, I’m still cautious.


XJO Weekly

The XJO finished the week at 5304.3, down -2.75%.


1.MACD Histogram. Below zero. Negative.

2.MACD. Below zero. Negative.

3.RSI.9  is at 40.7. Negative.

4.CCI.14: -51.9. Negative.

The Index is mildly negative on these indicators.

The chart is coming back to the 100-Week Moving Average. It crossed above that marker back in September 2012. Since then, the only serious test of that MA occurred in the recent September/October 2014 pull-back. If it fails here, the Index could be in serious trouble. That’s possible. The odds favour a bounce about now.


xjo daily

This is a market which has clearly been in serious difficulties. Now the 100-Day MA has crossed below the 200-Day MA and the 50-Day MA is below both of the longer M.A.s. The last time we saw such a condition was back in July 2012. The market then swung up – and the start of this bull market. There have been pull-backs along the way – the most serious being in June/July 2013 when the 200-Day MA was seriously tested.


1.MACD Histogram. Below zero. Negative.

2.MACD. Below zero. Negative.

3.RSI.9  is at 24.6. Extremely oversold.

4.CCI.14: -158.8. Oversold.

With such oversold readings, the Index is poised for a rebound.

We may now be in a similar situation to mid-2012.

The strength of the expected rebound here will determine whether this is the start of a new serious bear market, or the start of the next big leg up in the bull market.

If the Index can get back above the recent high around 5500 and the 100-Day MA – then we should be in for another good five/six months – maybe more.


U.S. Sector Strength

U.S. Bull Bear

This is a similar idea to the charts above for the Australian market.

The SP500 was up this week, +1.16%. It was influenced by OpEx Week which has traditionally been a strong week, up about 70% of the time. The week after OpEx has generally been slightly weak – really just a coin toss. But in the November, the week after OpEx is, more often than not, positive. So we could get a surprise. See next chart for analysis.

The top chart (Sector Strength) shows the market in a positive state. Only one sector is below par (<100%), and all four major Indices are above par.

The long term picture (Bull/Bear Status) continues to show some incipient weakness. Five out of nine sectors are on Bear Status and only one of the major indices is on Bull Status. These are lagging indicators – and recent short term strength suggests we can ignore these Jeremiah indicators. But just keep them in mind.


SPY Daily

SPY is the tracking ETF for the American SP500 – the usual benchmark for the American market.


1.MACD Histogram. Above zero, positive. But falling.

2.MACD. Above zero. Positive.

3.RSI.9  is at 81.6. Extremely overbought.

4.CCI.14: +184.6. Very overbought.

5.MFI: 77.9. Falling below 80.

These indicators set up the possibility of a pull-back. RSI.9 >80 is extremely overbought. Money Flow Index was >90 and has now fallen back below 80, so the buying pressure is easing. The slowing in momentum is also seen in the MACD Histogram.

The current trend from low to high is up >14% in about five weeks. Such a rise is clearly unsustainable. We haven’t seen anything like this in the past two years.

Friday’s action was initially bullish. SPY opened about 1% higher, but that was as good as it got. The daily candle finished below its mid-point – so SPY experienced some severe intra-day selling.

This might stagger higher for a little longer. But the inevitable will happen. We might then be looking at another great buying opportunity.




The first chart, NAAIM Exposure Index, shows allocations by Active Investment Managers in the U.S. This chart often leads the market. Looking back in time, before the last big pull-back, allocations actually reached a peak in early September, well before the market peaked in mid-September. We are once again seeing a drop off in allocations – so the market could have reached a peak. A small, but significant number within this group are clearly selling down their holdings. This is usually the “smart money” as this graph has a long history of diverging from the Indices before market tops.

The second chart shows the opinions of Individual Investors who are members of the American Association of Individual Investors.  These are not clueless people, but invidivuals usually with a strong interest in markets and investing.  The chart shows the net figure of bulls minus bears. Again, this chart tends to lead the market. Back in the 2013 Santa Rally, the chart peaked towards the end of December before the market topped out. The same comments apply to the AAII graph as to the NAAIM. It looks like the “smart money” in this group doesn’t trust this rally to continue.

They’re usually right in the short/medium run.



This is a chart of the VIX (Volatility or Fear Index) – which trends inversely to the SP500.

It’s in an ascending, broadening wedge formation.

The usual outcome for this is a break lower, i.e., higher for stocks. And it is reasonably reliable according to the statistician of chart formations – Bulkowski.

The expected outcome is level with the originating move back in early July.

That depends on the VIX breaking below the support line of the wedge.

If it breaks higher above Thursday’s high – all hell might break loose.

That seems to be a possibility given my earlier analysis of the SPY. But – that’s jumping the gun.

A break below the support line of the Wedge, and, as implausible as that seems, we’ll see higher levels in the American market. But we don’t rule anything out in the markets.

Let’s see which way it goes.


First, a weekly summary of major world markets: Australia down -2.75%. German DAX up +5.18%. London up +1.45% SP500 up +1.16%, Japan down -0.76%. China88 down -0.75%. Emerging Markets ETF up +2.41%. Global Dow up +1.14% %. Copper Futures down -0.49%   GLD (ETF for US$ Gold) up +0.8%. U.S. Oil up +0.94% and now stabilising at extremely oversold levels.

The big Asians and Australia were weak, while America and Europe were strong.

America market is overbought, Australia is oversold. I often wonder why we ever think about the American markets. In the past 30 days there has been virtually zero correlation between the American market and our market. But major turning points in the American market do affect our market. America could be at such an inflection point now. It is overbought, and the smart money in AAII and NAAIM appear to be selling off. Those two groups are large and represent two distinct groups. Sentiment charts from those two groups tend to lead the market. They’re not great timing devices – but provide forward warning signs.

VIX (Volatility Index, or Fear Index) is at an inflection point. A break higher – and American stocks will fall. Lower – and we’ll see further gains in this remarkable bull trend which started in mid-October.

November in America has a good seasonal record. Australia is not America. November has been down in the XJO for four of the past four years. 2013, -1.94%. 2012, -0.24%. 2011, -4.15%. 201,0 -1.66%. TheNovember seasonal effects for both America and Australia have played out nicely so far this month. Sometimes it pays, if you’re trading Australian stocks, to ignore all the noise that comes out of the media about the America market.

Friday night saw some remarkable moves in overseas markets as a result of a double-barrell effect. China announced interest rate cuts and Draghi (once again) promised stimulus to counter-act deflation. Draghi is beginning to sound like the Boy Who Cried Wolf. But the European markets liked what they heard – and took off.

That’s going to have an effect on our market early next week.

Perhaps America can defy the technicals. Overbought might get more overbought. But I can’t see much more in it before a down turn, or, at best, more or less sideways for a couple of weeks. Australia is so oversold, it seems certain to bounce. But I wouldn’t get too optimistic until the XJO gets over 5500.


For daily updates – check http://redbackmarketreport.wordpress.com/

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OpEx Day. Morning Joe. Saturday, 22 November, 2014

November 22, 2014 Leave a comment

OpEx Day is typically a narrow range, high volume day – unless some unusual economic news is released. Well, that’s what happened this time. China announced interest rate cuts. Meanwhile, in Europe. Draghi, the Head of the ECB, promised he would take whatever steps necessary to combat deflation. Note: he didn’t actually announce any specific action. Not to worry, the European bourses took off, German DAX up +2.62%, French CAC up +2.67%.

That set the scene for the American markets to open higher – which they did – much higher. The SPY (tracking stock for the SP500) opened up about 1% above the previous day’s close – then sold off.

Here’s the SPY Chart:


This chart sets up the possibility of a pull-back next week. RSI.9 is extremely overbought. CCI and TSI are both in the very high range. MACD Histogram has been falling – so momentum is staggering. MFI is falling suggesting that some of the smart money has been selling out. TRIN on the NYSE finished at 0.56 – below 0.6 (especially at the top of a long up trend) is often a catalyst for a short term sell off – too much exuberance, nobody left to buy.

The China and ECB announcements also had a big effect on Commodities. Copper up +0.85%. Nickel up +1.82%. Zinc up +2.18%. The Copper ETF (CU), which tracks companies involved in the copper mining industry, was up a massive +4.19%. Crude oil futures were up +0.87%, but showed some intra-day selling pressure.

Anything relating to the China trade was generally much higher, so our big miners in NY skyrocketed.

Oz Stocks in NY:

BHP +3.97%. Rio +4.86%. Westpac +0.39%. ANZ +0.63%. EWA +1.08%. Oz Dollar +0.55%.

The bleeding obvious is that our market will be higher on Monday – particularly the Miners. We’ll have to wait and see if it can be sustained.

Full Weekly Report tomorrow (if the Internet Gods oblige).


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Slow Creep Up. Morning Joe. Friday, 21 November, 2014

November 21, 2014 Leave a comment

In America:


Nasdaq Composite +0.56%. New York Composite +0.06%. Russell 2000 +1.13%. Dow Industrials +0.19%. SP500 +0.2%.

Nasdaq and R2K got back all their losses, plus a bit, from the previous session. The other three continued their slow creep up under the influence of OpEx Week.

The market dropped on opening after poor economic news out of Europe – but the Dip Buyers stepped in. They’re not going to let this fall until after Options Expiry is over.

Here’s the detailed chart for the SP500:


The Index is once again above 80 on the RSI.9 and the TSI continues to rise well above 25. That’s extremely overbought in my book. This needs to be worked off.

The Philadelphia Fed Business Activity Index had a huge rise – and finished at the highest level since 1993. Statistically, it looks impossible. And I don’t think the market believed it – otherwise stocks would have sky-rocketed. So, it makes great headlines – but is probably an anomaly which will be corrected.

Don’t expect anything dramatic to happen in the next session. We might have to wait till next week.


Copper in the U.S. was flat, +0.05%. No movement occurred in the Iron Ore price – it remains at $70. GLD had a belter +1.04%. US$ down marginally, -0.13%. The Energy Group (Oil, Natural Gas, Gasoline) in America continued strong upward movements. The Energy Sector in NY was the best performing sector last night, up +1.25%. The correlation between it and energy stocks in Australia is weak (unlike the Metals prices and our Mining Sector). But it might spark a bit of optimism here.

Oz stocks in New York:

BHP -1.25%. Rio -1.86%. Those are poor raw figures – but both stocks showed strong intra-day buying. Westpac -0.67%. ANZ +0.69%. EWA +0.42%. EWA and the banks also showed strong intra-day buying. Bottom fishing is obviously taking place after the big down day in Australia yesterday.

Volume in Australia today will be affected by Options Settlement Day.

After the big down day yesterday, and after eight down days in the past nine, and with bottom fishing in America – I’ll be surprised if we’re not up today. But the Stock Market Gods might think otherwise.


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Things are Crook in Tullarook. Postprandials, Thursday, 20/11/14

November 20, 2014 1 comment

Oh dear. Things are crook in Tullarook. Too right. You shoulda seen how the ole XJO plunged in tradin’ this arvo. Down the gurgler. Will it ever come right? Maybe. Some day. I might go ask Hanrahan – he’d know.

Here’s the chart:


RSI.9 is down below 30. That’s usually good enough for a bounce. But we’re not seeing any of the usual positive divergences on the indices that usually precede a bullish reversal.

Volume was up today above average. But not enough to suggest this was a washout.

Advance/Decline Ratios were poor – but, again, not enough to suggest a washout.

I think we’ll see some more down side before we find a bottom. (And I asked Hanrahan, he reckons we’ll all be rooned, before the year is out.) Dunno that I agree with everything that Hanrahan says – but it sure is crook now. Down eight days out of nine. So we’re due for a bounce – then some more down.

Hanrahan obviously hasn’t heard about the Santa Rally. :)


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FOMC. Copper Up. Iron Ore Down. Morning Joe. Thursday, 20 November, 2014.

November 20, 2014 Leave a comment

A lot happened overnight in America, but you wouldn’t think so looking at the major American indices:


Markets were down early, carrying through from the late afternoon sell-off the previous day. They crawled back up to around par when the FOMC minutes were released. As usual, the equities had a few spasms, but were generally unmoved by the end of trading. That’s not true of the small caps – which were down strongly.

Nasdaq Composite -0.57%. New York Composite -0.13%. Russell 2000 -1.08%. Dow Industrials -0.01%. SP500 -0.15%.

The blue chips and the large caps remain very overbought, with the Dow 30 just a smidgin under 80 on the RSI.9.

Nasdaq is beginning to show some cracks in the dam wall. RSI.9 has now fallen below 70. The New High/NewLow Ratio is now below its mid-line. It is now sitting at 40.9%. Given that just yesterday the Nasdaq set new multi-year record highs, that’s very, very odd. Something a bit stinky there.

When you add that to the poor result in the Small Caps, and this market is looking shaky.

Much of north-east America was covered in deep snow during this session. New York had about 5 feet of snow. Looking at the volume figures, you wouldn’t think that much had happened. About average for the past few days. Usually, such weather disruptions have an obvious effect (down) on volume figures. That may, in fact, be significant. If volume was average in adverse conditions – there was actually a lot of action going on amongst market participants. That often suggests a market top after several days of narrow ranges. But – maybe I’m speculating too much.

Here’s the SP500 chart:


The current candle remains a relatively narrow range, with the lower tail indicating the buying pressure that occurred early in the day. Indicators are generally overbought, but still not showing negative divergences which typically occur before a serious pull-back.

While most of the equity indices were relatively flat, plenty of action occurred in other arenas.

In Commodities, Industrial Metals Group was up +0.81% with Copper up +0.9%. Nickel went berserk, up +3.07%. Iron Ore was smashed again, -3%. That’s down -7% in two days. That’s rough. Natural Gas was up +3.86%. It’s been up big time over the past four days – probably weather related. That market could see the current big snow falls coming. Gold was on a roller-coaster down heavily as London closed, then up sharply, then down heavily again after the FOMC. GLD finished down -1.19%. US$ +0.17%.

Oz stocks in New York showed a lot of volatility which was absent from the American Indices:

BHP -1.54%. Rio -2.31%. Westpac -1.39%. ANZ -1.83%. EWA -2.55%. (Ouch.) Oz Dollar -1.16%.

Taking all that into account, the odds on us being down today are high. But – you never know your luck in the biggest casino in town. I’d expect a few to try catching knives in the Iron Ore Miners.


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Down Again. Postprandials, Wednesday, 19 November, 2014

November 19, 2014 Leave a comment

XJO down -0.57%. Volume above average – a distinct change from the past few days.


The Net Advancec-Declines was negative for the seventh day in a row. This pull-back is beginning to get a little old.

The chart is now marginally below a major horizontal support line. RSI.9 is oversold – but not dangerously so.

This all adds up to the possibility of a short term reversal to the upside – but it is likely to be sold into.

Consumer Staples was the worst performing sector today. That’s a bit unusual in a down trend. But Woolworths is “on the nose”. Here’s the WOW chart:


WOW has been in a down trend since April, 2014. Today’s action could be capitulation. The stock gapped down on opening and set up a wide range day. Volume was very high. The chart is at dual support.

We need to see a wide range up day tomorrow on high volume to confirm the capitualtion theory.

The other worst performer today was the Mining and Metals Index, down -1.56%. That’s not surprising given the poor Metals prices overnight – particularly Iron Ore. The Mining and Metals Index is now at support – and sets up the possibility of a double bottom. But I wouldn’t get too excited about that until we get confirmation.


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Last hour – sold down. Morning Joe. Wednesday, 19 November, 2014

November 19, 2014 Leave a comment

In America:


Nasdaq Composite +0.67%. New York Composite +0.54%. Russell 2000 +0.52%. Dow Industrials +0.23%. SP500 +0.51%.

Most indices were up moderately – the exception being the Dow 30. Indices are well up around 3.00 (NY time) but sold off in the last hour. Russell 2000 was up nearly 1% early in trade but gave back about half of that. The Dow 30 gave up about half its gains in the last hour. Other indices saw some selling late in the day, but not to the same extent as the Dow 30.

Apple was looking shaky in Monday’s trade, but showed some strength in this session, up 1.3%, this helped the Nasdaq to the best finish of the major indices.

All nine Industry Sectors finished on the plus side with the best performers Health +1.61% and Materials +1.2%. (The Materials Sector in America has a somewha different composition from the Australian Materials Sector which is dominated by Miners. Chemicals, e.g., are on a par with Mining and Metals in the American Index.)

Here’s the detailed chart for the SP500:


The Index has broken marginally above the restraining line of the megaphone formation I’ve been talking about for some time. RSI.9 is now extremely overbought at 80.4. So there doesn’t seem to be much more in this.

This week is Options Expiry Week. It has a bullish bias, up >70% of the time. So we could see a bit more upside by the end of the week.



Industrial Metals Group down -0.93%. Copper in America down -1.06%. Spot Iron Ore down -4.2%. (I mentioned yesterday, that IO had broken down a little from its recent seven day consolidation. But this was dramatic.) GLD +0.88%. US$ -0.47%.

Here’s a one year comparison chart of the ETF for Industrial Metals (DBB) and the Australian All Ordinaries Index:


This shows a high correlation between the two. What happens in the Industrial Metals Group has a big effect on our stock market – not just the Mining Sector. (The correclation going back more than one year is not as clear cut as this. So this might continue working – or not.)

Oz Stocks in NY:

BHP -1.12%. Rio -1.95%. Westpac +0.38%. ANZBY -1.54%. EWA +0.08%. Ozzie Dollar +0.15%.

It seems likely we’ll have another mixed bag today. I feel for anybody who has big holdings in the pure iron ore miners. Gold Miners will have another good day. I’ve been bullish on the Gold Sector for over a week now – and that optimism is paying off. The positive lead in America and the stronger Ozzie Dollar should have a positive early effect on our market – but the Miners are going to be a drag today. What happens later on is in the hands of the Stock Market Gods.


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