First day of spring here in Brissie. And what a beautiful it day it was too. 25 Centigrade. Blue skies. No wind. Does it get any better than this?
Meanwhile back in the trading pits, the bears were Selling-Da-Rip.
Our market was up early in the day. After 11.00 a.m. the Bear Suits came in from their morning coffee and sold the market down. It finished more or less flat. XJO up +0.07%.
What was the early buying about? Who knows. But given the holidays in America and Canada – would punters be taking a risk today?
Now – before we get all cocky and know-it-all, the Australian market has a habit of producing an unusual result in one of the two days we have trading without any direct news out of America. Look out tomorrow.
Here’s the XJO chart for today:
The nature of the intra-day sell-down today is clear in today’s candle. Up strongly early on – then bang – down it went.
Two big needles in close proximity like we see in today’s chart are highly unusual. This sort of analysis is highly subjective. You really can’t get objective data looking at such events. But interpretation suggests we’re seeing a strong bearish mentality enter the market.
Ok. Let’s be objective. We’re seeing a consolidation with a slight downside bias. So far, no serious damage has been done to the uptrend, the medium up term remains intact.
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 Daily.
American Market: SP500 Weekly
Left Field – Put/Call Ratio
Left Field – Investor Sentiment
Australian Market: BHP – Daily
Summary and Conclusion
AUSTRALIAN MARKET:SECTOR RELATIVE STRENGTHS
This week the broad market index (XJO) was down moderately -0.35%. but showed intra-day selling pressure on the last two days of the week.
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) are: Telecoms (105), Health (107.6) Energy (104.1). In the sub-sectors, Property has also been outstanding with RS of 105.6. it should be noted that Telecoms and Property both weakened somewhat this week. The Telecoms suffered from the ex-dividend day on Telstra. Health has been the big winner recently and appears to have broken out into a new bull market. Now strongly overbought, some sort of a pullback is likely.
The Sector Structure (based on the overall Bull/Bear Statuses) remained static this week. Despite the overall market dropping moderately this week, all ten sectors are back on Bull Status. The Status is determined by the relative positions of the 50-Day and 100-Day Mas. If the 50-Day MA is above the 100-Day MA, the Sector is on Bull Status. Both Health and Consumer Staples came off Bear Status this week. Consumer Staples move might be short lived, as the sector suffered on Friday when WOW price dropped -2.14% after a negative Report. We’ll have to wait and see how that one pans out.
While there have been some changes in relativities, this is 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.
(I might add that the daily media outlets love to tangle up investors’ emotions with stories of impending doom. CNBC came out this week with another such regular doomsday prediction this time from David Tice – the market is going to go down by 30-60%. It’s good for selling media stories – but ignore it.)
AUSTRALIAN MARKET:MONTHLY CHART – XJO
The XJO was down marginally this month -0.12%.
The dominant pattern on the chart is the Rising Wedge. We’ve had a marginal break above the top of the Wedge – but insufficient to justify a break-out call. This month has seen strong intra-month buying.
MACD Histogram is sloping down and has been since November 2013. This is not necessarily bearish – just an indication that Momentum has slowed.
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. 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. A break by the MACD Histogram below zero should not be ignored.
AUSTRALIAN MARKET:WEEKLY CHART – XJO
The XJO finished the week at 5625.9, down -0.35%. The move down this week was moderate. The range of the candle this week was just 0.68%. I’ve done a careful check back – and that’s the narrowest range in the last two years. I made a more cursory look over the past five years but couldn’t find a narrower range.
MACD Histogram. Above zero. Positive.
MACD. Above zero – but showing a negative divergence
RSI.9 is at 62.4. Positive.
CCI.14: +140.4. Overbought with a negative divergence.
Six weeks ago, CCI reached an extreme overbought reading above +200. It is now showing a negative divergence. No guarantees – but negative divergences on the CCI often come before a market fall.
The Rising Wedge is clear on the Chart. It suggests declining momentum.
The trend remains up, although losing momentum.
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.
AUSTRALIAN MARKET:DAILY CHART – XJO
Seven days ago, the XJO candle was a “needle”. That intra-day sell-off may have set a market top for the XJO.
MACD Histogram. Above zero. Positive but falling.
MACD. Above zero. Positive.
RSI.9 is at 59.3. Falling from overbought..
CCI.14: +34.7. Falling from overbought.
True Strength Indicator shows a negative divergence.
All of this suggests we may see more downside in the short term.
In the medium term, the XJO remains in a gently upsloping channel. Even a -4% fall would keep it in that bullish channel.
AUSTRALIAN MARKET: HEALTH SECTOR
Health has, this week, returned to Bull Status, with the 50-Day MA moving above the 100-Day MA. Sometimes that merely shows that the Sector is in a sideways oscillation. That was the case for some months.
That sideways Oscillation has now ended. The Sector has made a clear break above the major R/S line on the chart.
Time to buy?
The True Strength Indicator is at extremely overbought levels. Overbought is 25. TSI is at 44.3. A reversion to the mean is a likely scenario.
Another scenario is this one: Health is now in the final stages of a bull market. It has gone up exponentially, but after a long sideways consolidation, nearly six months.
Tactically, I’d expect this to come back towards the S/R line and the 20-Day MA, then bounce. That might result in a good timing entry.
AMERICAN MARKET:SECTOR RELATIVE STRENGTHS
This is similar to the charts above for the Australian market.
The SP500 was up strongly this week, +0.75%. That’s now over +4% in three weeks.
The Americans have been in the grips of a strong bull market. Seven out of nine Sectors remain on Bull Status. Two Sectors ((Industrials and Utilities) are on Bear Status. That’s the same as the previous week.
The big change this week was in the Status of IWM. (IWM is the ETF for the Russell 2000 – Small Caps Index.) It has moved off Bull Status on to Bear Status. IWM is most important as a breadth indicator. Poor breadth is a negative for the market. This may be an early warning sign.
The shorter term Relative Strength readings still look fine. No Sectors and no major Indices have a RS reading below par (100).
AMERICAN MARKET:SP500 DAILY
The rebound off the support of the 100-Day MA (blue dashed line) was strong, but moderated a little this week, with the SP500.
RSI remains overbought at 72.6. CCI is showing a clear negative divergence.
Friday’s positive move suggests this index may have one more run-up before we get a serious pull-back. (But see below regarding the Put/Call Ratio.)
AMERICAN MARKET:SP500 WEEKLY
SP500 is once again at the top of its bull channel. Some sort of consolidation or pull-back seems likely.
It could continue creeping up the restraining line of the channel – and maintain a slow stealth bull market. Support is likely at the next parallel support line, if the market does pull back.
There are plenty of negative divergences on indicators, so the most likely scenario is a pull-back. Just don’t expect a major correction.
A couple of weeks ago, I showed a chart that suggested the American market could easily continue upwards into early 2015 before we see a significant correction – and still be within the bounds seen in previous bull markets.
I can’t see any reason to change that view.
LEFT FIELD: PUT/CALL RATIO
The top chart is the Put/Call Ratio Chart for the CBOE Options.
Spikes above 1.5 have, in the past six months, suggested downside in the SP500.
Spikes 1 & 2 occurred at market tops.
Spike 3 marked a continuation of the down trend after a brief rebound.
We’re now at Spike 4.
My suggestion earlier that the SP500 could have one more run-up might be seriously wrong.
LEFT FIELD – BULLISH SENTIMENT
Each week, the American Association of Independent Investors surveys members on how bullish/bearish/neutral they are.
Contrarians believe that overly bullish sentiment suggests a market top is near.
Currently, AAII members are over 50% bullish and under 20% bearish. That +50% Bull reading is the highest since the Santa Rally.
That saw the market consolidate then fall into a big pull back in January.
This is not a great timing device – but acts as a warning that sentiment is becoming too bullish.
When too many people are bullish – then they’ve probably already bought. There’s no body left to buy. So the wheels fall off the rally.
AUSTRALIAN MARKET:BELL-WETHER STOCK – BHP DAILY
Last week I said: “This week BHP appears to have undergone a classic trend reversal.”
This week it maintained the bearish move to the downside. It tried to find support at the 100-Day MA in the middle of the week, but that collapsed on Thursday. Friday saw some good intra-day buying, but that might be a bit optimistic.
It’s possible that BHP will find some support here. It is now opposite an old congestion zone and oversold on the RSI.
TSI and MFI suggest this could have more downside before a bottom is found.
Given the state of the TSI and MFI, I still think this is likely to reach the bottom of its trading range around 35.20. I’ll be happy to be proven wrong.
SUMMARY & CONCLUSION
First, a summary of major world markets: Australia down -0.35%. German DAX up +1.4%. London up +0.66% SP500 up +0.75%. Japan down -0.74%. China88 down -1.13%. Emerging Markets ETF up +0.69%. GLD (ETF for US$ Gold) up +0.54%. Copper Futures down -2.17%. That’s a mixed bag.
Australia had its narrowest range week in many years. Such events usually lead on to explosive moves.
Market structure in America and Australia remains bullish. This is a trend following system. It shows what is – and is not predictive.
Turning to prediction (a hazardous occupation) I think we’re likely to see some short-term downside, but any pull back is likely to be bought.
The Put/Call Ratio on the CBOE Options suggests that the American market is likely to fall. The SP500 is right at the top of its long term bull channel. It could continue to slide up along that restraining line, but the P/C Ratio is suggesting otherwise. Investors (AAII Survey data) are also showing too much bullish sentiment. That often comes before a fall in the market.
The Australian market is also close to the top of its medium-term bull channel. It could, of course, continue on up close to that restraining line, but the preferred action I see is a market drop until the momentum indicators have completely worn off the recent overbought readings.
For daily updates – check http://redbackmarketreport.wordpress.com/
Nasdaq Composite +0.5%. New York Composite +0.33%. Russell 2000 +0.72%. Dow Industrials +0.11%. SP500 +0.33%.
Dow Industrials was relatively the weakest. A narrow range inside day. All the indices showed intra-day buying, and all finished on the positive side (unlike the previous two days).
The market fell until the usually crucial 10.30 time frame (NY time) then rose sharply. The indices actually displayed an ABCD pattern (down, up, down, up) with the C leg a long shallow affair from around noon to 3.00 p.m. The market then surged in the last hour to take it up to around the highs set at noon.
This mini-pull back in the middle of the week might be over. We’re probably going to see one more leg to the upside in this run-up from early August. We’ll see.
I thought volumes might be very low – given that it was the day before a long week-end. But it was the last day on the month – sometimes money flows into stocks on the last couple of days of the month.
Here’s the detailed SP500 Chart:
The RSI.9 remains in the overbought region. With such a reading, any further upside (mentioned above) is likely to see selling into strength. But – the way this market has worked for the past couple of years, any pull-back will be bought.
CRB Index up +0.48%. Industrial Metals bounced off the 20-Day MA, up +0.65%. Copper up 0.27%. Precious Metals -0.28%. GLD (ETF for Gold) -0.11%.
Oz Stocks in New York:
BHP +0.59%. Rio +0.09%. Westpac +0.24%. ANZ +0.03%. EWA +0.07%. Ozzie Dollar -0.19%.
Nasdaq Composite -0.26%. New York -0.26%. Russell 2000 -0.58%. Dow Industrials -0.25%. SP500 -0.17%.
The media was full of new developments in the Ukraine – spreading fear and dread into the investing public – NOT. The market opened down, but the Dip-Buyers almost immediately hit the buy buttons and sent indices back up, not all the way, but a convincing intra-day rally. Dow Industrials was down more than triple digits before 10.00 a.m. NY time – and finished down just over 40 points. Well above the mid-point of the daily range. Most other indices underwent similar intra-day buying. The weakest was the Russell 2000, but even that saw strong intra-day buying in the first hour.
In America, we’re coming up to the Labor Day Weekend. In the past seven years, the SP500 in the week preceding the Labor Day Weekend has generally been weak. Six years out of seven have been down. This year might buck the trend. The past two days have been mildly negative but, so far, the week is up +0.42%. A big down down day on Friday could keep the recent history intact.
SP500 bounced nicely off support last night. Here’s the detailed chart:
Some intra-day selling occurred on Monday and Tuesday. Wednesday and Thursday saw intra-day buying. At this stage, we’re looking at consolidation wearing off the overbought conditions.
The first few days after Labor Day have a tendency to be weak, but nothing dramatic.
September is one of the weaker months – down about 60% of the time. Bigger falls tend to occur late in the month. That might be the time to be cautious.
CRB Index up modestly +0.31$. The big move came in Industrial Metals -0.83%. Copper down -1.4%. Iron Ore -1%. Precious Metals +0.56%, but showed intra-day selling after hitting the 20-Day MA. GLD (Gold ETF) up +0.55%.
Oz stocks in New York:
BHP down heavily -2.01%. Rio even worse -3.59%. Westpac flat -0.12%. ANZ down -0.61%. EWA +0.07%. Ozzie Dollar +0.26%. The upward movement in the Ozzie Dollar makes the performances of the Ozzie stocks look even worse.
With weak Copper and Iron Ore, and poor results in BHP and Rio overnight, our miners will be weak today. If our market is going to be saved, it will be up to the Financials. They seem unlikely to be very strong today.
Woolworths, one of the 20-Leader Stocks, reports today. That report is out already. In the pre-market, Woolworths is down about -1%.
XJO down -0.47%. That’s the biggest range we’ve seen in five days. It still wasn’t large, but the doldrums seem to be behind us. Expect things to hot up a little from here.
Volume was exceptionally high – that’s a result of Options Expiry Day. Nothing to get concerned about.
Here’s the XJO Chart:
Last Thursday’s needle is starting to look more and more like a “top”. We never know for sure until retrospectively.
Today’s candle is a bearish engulfing. The close today was marginally below the low of the previous pivot set on Monday. Still not conclusive enough.
But – indicators continue to roll over – this looks to have a lot more to fall.
I thought this morning that there was a possibility that the Financials, and maybe BHP, might stop the rot. Financials x-Property down -0.2% and BHP down -1.21%. The Financials were relatively muted – but still far from positive.
I haven’t been optimistic about BHP since the break-away gap (downside) last week. But I thought it might get a bit of a relief bounce about now. But it’s not to be. I still think, medium term, BHP is going back to the bottom of its trading range.
See you in the morning.
Nasdaq Composite -0.02%. New York Composite -0.11%. Russell 2000 -0.21%. Dow Industrials +0.09%. SP500 +0.00%.
Virtually no movement in the major indices. The little note of optimism in the Russell 2000 yesterday has disappeared. Volume has dried up. That doesn’t mean a lot but if we get another couple of narrow range days on higher volume – we might be seeing the seeds of a reversal. RSI.9 on all indices except R2K (the weakest) is now above 70 – overbought. So the odds of a pull-back are increasing. But overbought readings can always be worked off with sideways action.
Here’s the detailed chart for the SP500:
RSI.9 and MFI are both into overbought regions. They often require negative divergences before we see significant downward movement. CCI has moved down – indicating that momentum has stalled. Again – we may need to see negative divergence before this trend finishes.
The current trend is now about the same range as the May rise – but that only brought relief to the bears for a couple of days. But that sort of pull-back is now looking more likely.
Except for the Industrial Metals, all these charts are in bearish profiles. They’ve worked off oversold readings on RSI.9 with sideways consolidations. There may be upside movement, but until the 20-Day MA crosses over the 50-Day MA, any upward movement would have to be considered a counter-trend movement.
CRB Index +0.05%. Industrial Metals -0.09%, and formed a bearish “hangman” candle. One day candles are notoriously unreliable – we’d have to see a big down day to confirm. Copper down -0.2%. Iron Ore -0.8%. Iron ore is now at 88.2. I remember the gnashing of teeth when it fell below 100. There doesn’t see any respite for the iron ore miners.
GLD (ETF for Gold) -0.02%. Ukrainian news and a lower US$ still couldn’t budge Gold last night.
OZ Stocks in New York:
BHP +0.72%. Rio -0.45%. Westpac +0.67%. ANZ +0.74%. EWA +0.37% – and broken above horizontal resistance. Oz Dollar +0.29%. So – most of the movement in EWA was due to currency movements.
Reports from large companies today: Ramsay Health, Qantas, Atlas Iron. Companies like these always make for interesting news stories – by the results won’t move the broad market.
The Financials had a good run yesterday up about 0.6%. It seems they’ll be carrying the can again today.
XJO up +0.24% today. Volume was heavy – inflated by dividend-stripping in Telstra – but even taking out the increased volume in Telstra, Volume was still heavy at about 110% of the 20-Day Average Volume.
Today was a very narrow range day – only 0.26% from low to high. I started looking back to see when we had a similar narrow range day – but gave up after going back about five weeks. That was enough to convince me about the narrowness of the day.
So – we had a very narrow range day on high volume. Looks to me like there’s a lot of selling into strength. (If the volume figures can be believed – but that’s another story for another time.)
We still need to see a wide range down day to confirm a top in this market – although that needle on 21 August is looking more convincing.
BHP finished up 0.3% today – and appears to be bouncing nicely off the dual support of the 100-Day and 200-Day MA. (I haven’t marked the 200-Day on this chart – but it coincides more or less with the 100-Day).
Unless overseas events intervene, a nice counter-trend rally looks likely. I’m still not confident longer term.