XJO flew out of the box today, hit a high just before 11.00 a.m. and then fell backwards. The Index finished up +0.33% after beomg up over +1% in the first hour. The chart is left with a shooting star candle which has possible bearish implications. One day candles are not good indicators, we need to see a big down day tomorrow to think that today’s action was a bear signal.
Clearly, the Index hit the 50-Day MA and reversed. That’s not to be unexpected. That level was also around the pivot high of 9 September. So we had dual resistances – always hard to overcome.
I’ve been warning recently that there is plenty of overhead resistance to be overcome. Today was a great example of how difficult the road ahead might be. But a bull market is built on a “wall of worry”.
We may have a problem here known as the ‘recency effect’. We’ve been conditioned recently to presume that markets will fall. Maybe that’s a reasonable assumption. But maybe it should be viewed with some skepticism.
The past two days in the American market suggest that something important has changed in the market. A huge reversal day on Friday, then a gap up on Monday with good follow through, and a reduction to minimal numbers in New Lows on the NYSE.
But most people will look at the chart and see that big waterfall down and shudder. Then every attempt at a rally has fallen since. Why should we expect anything different now? Why indeed? Maybe the American market is giving us a reason.
We also have that false break on 29 September, which quickly pulled up the next day above that important support level. Another reason to suggest we’ll see a move higher. False breaks are often accompanied by strong movements in the opposite direction.
So, no matter how much I rationalise and speculate, the market will do what it wants to do.
If we get a big down day tomorrow – then the bears will have their biasses confirmed – and the bulls will be shattered. They probably are after today. But that doesn’t mean the market will go down.
Let’s see how tomorrow goes.
DJ +1.85%. SP500 +1.83%. Nasdaq +1.56%. New York Composite +1.95%, Russell2000 +2.47%.
It’s easy to get euphoric after a day like today. Euphoria should lead to cynicism for those who’ve been long time in the markets. So – should we now be cynical about our cynicism.
So – is this the end of the correction? I have to think so. Remember, on Friday, the Dow Jones was down nearly 300 points and then finished up +1.23%. That’s a massive reversal. Today, the major indicators had a small gap up – that’s rare.
Let’s have a look at the internals. I was suspicious about Friday’s big rise because we also saw a drop in the H/L Ratio. But today we have a strong confirmation of the bullish sentiment in the H/L Ratio. The NYSE H/L Ratio came in at 71.4% after being at 4.3% on Friday. New Lows have dropped off from 268 on Friday to just 20 today.
Here’s a chart for the H/L Ratio:
The trend of lower highs in the H/L Ratio began back in April. Today broke that down trend to the upside. This looks better.
Here’s a regular candle stick chart for the SP500:
XJO up very strongly today +1.9%. Volume was subdued because of Labor Day Holidays in a number of states. Volume was like the year-end festive seasons. So we won’t take much notice of the gross figure.
UpVol/DownVol Ratio was an extremely high 82.3%. So the smarties down in Victoria (not on holiday) took the opportunity to buy everything worth buying while the rest of the big players had a holiday.
Here’s the XJO chart:
The downtrend restraining line has broken to the upside – and the chart has hit the first horizontal resistance line. I usually think that trend lines are less important than horizontal support/resistance lines. When both break – then we have something worth thinking about.
But – if that resistance line does break – we still have massive overhead resistance to overcome. If we get above the 50-Day MA and the Super Trend Line we might have a bull market on our hands.
Here’s the Sector Performance Chart for today:
Everything was up – and up more than 1%. Great stuff.
The weakest sector was the Financials. hmmmm. We need that to be relatively stronger.
Here’s the Relative Strength Chart which shows the performance of the sectors and sub-industry groups relative to the XJO:
The clear out-performer remains the Gold Mining Index. It was up +7.51% today, above the 200-Day MA and close to a 52-Week New high.
Amongst the 10 S&P Sectors, the preferred sector remains the Industrial Index. Financial Index remains below the zero line.
Economic data today was especially strong. From comsec.com.au:
In economic news, new motor vehicle sales totalled 101,392 in September, up 6.8%on a year ago and the highest ever sales result for a September month. Meantime, Job advertisements rose by 3.9% in September – the strongest gain in 15 months. Job ads have risen in 14 of the last 16 months.
Motor vehicle sales is a litmus test for the economy. If they’re strong – so is the economy.
On those figures we can forget about a drop in interest rates by the Reserve Bank this year.
Here’s the Relative Strength Performance Chart for the 20 Leaders.
Most of the stocks are under-performing the XJO (the reference index).
Stand-outs are the two Lowry companies: WFD and SCG.
Amongst the others, the only one performing relatively strongly is Brambles (BXB). That belongs to the Industrial Index which is the best performing S&P Sector.
Here’s the Brambles Chart:
BXB broke out of its trading range today – but it hasn’t been confirmed by the Money Flow Index. So I think the upside break should be taken with a pinch of salt.
The stock is now almost up to the Super Trend Line. Given the poor indications from the MFI, the STL might prove a bridge too far.
- Australian Market: Weekly Performance Chart
- Global Performance: Weekly Chart
- Australian Market. XJO – Monthly Chart.
- Australian Market. XJO – Weekly Chart.
- Australian Market. XJO – Daily Chart.
- ASX 100 – Stock Ratings – Best and Worst
- America – Daily.
- America – Retail Sentiment.
- Summing up.
- Appendix – Complete ratings for all ASX100 stocks.
AUSTRALIAN MARKET: SECTOR PERFORMANCES IN THE PAST WEEK.
The broad market index for Australia (XAO) rose modestly this week +0.25%. Five out of ten S&P Sectors were positive. Financials turned in a positive week this week, +0.71% and that helped the market into positive territory. Ignoring Info.Tech, the best performers were the retailers, Consumer Discretionary +2.13% and Consumer Staples +1.44% – no doubt helped by the positive retail sales report.
Health was the worst performer -2.8%, followed by the perennial dog, Energy -0.99%.
AUSTRALIAN MARKET: SECTOR RATINGS Medium and Long Term.
This chart takes a medium term and long term view of the various sectors, while the Weekly Performance Chart above takes a short term view.
Ratings are based on performance compared to the ASX200 over the past 52 Days (Medium Term) and 52 Weeks (Long Term).
Industrials is the best performer in both the medium term and long term. XNJ is a little ahead of Utilities (XUJ) in both time scales. It might pay, for those who must trade in this market, to look for opportunities in XMD (Mid-Cap 50) for stocks in those two Sectors. Gold Mining is the clear leader in the Industry group. Look for opportunities there in the Small Caps and mid-Caps.
Avoid stocks which are below the zero line on a medium term basis.
GLOBAL PERFORMANCE – WEEKLY
Global markets were mixed this week. Australia performed more or less in the middle range of the global markets, XJO rose modestly +0.2%. Emerging Markets +4.44% reversed the big loss of the previous week. It is still too early to think that the worst is over for Emerging Markets. Global Dow was positive +0.79%. UK also rose modestly, +0.34%. Germany -1.4%, China -1.14% and Japan -0.87%. Germany is still feeling the effects of the Volkswagen scandal.
All these markets are in medium term down trends.
AUSTRALIAN MARKET: MONTHLY CHART – XJO
The XJO is sitting on Major Support. A monthly close below that line would be seriously bearish.
Already, the Detrended Price Oscillator is in bear territory. This needs to break back above the zero line before considering re-entering the market on a long-term basis.
The Dynamic Stochastic is down at 16.01. This needs to get back above 20 and the lower band of the two Dynamic Bands.
The chart is down at the lower Bollinger Band for the first time since 2011.
Is the glass half-full or half-empty? Choose your personality style: The optimist will look at these indicators and say the market can’t go down much more, I’m going to buy. The pessimist will say it could keep on going down and down for a long time yet, I’ll go to cash. The realist will say – I’ll wait and see if this turns up before re-entering.
AUSTRALIAN MARKET: WEEKLY CHART – XJO
Horizontal support around the 4980 level has now held for six weeks. We’ve had a couple of tentative breaks lower but each time the market has recovered. This week’s candle is an indecisive doji candle. Watch for a break either up or down.
The Dynamic Zone Stochastic is interesting. It is now in a tight squeeze. If this breaks upwards above the upper Dynamic Band, then the medium term trend could be over. It could, of course, break lower. Or stay within the tight squeeze for a few more weeks. Patience is required here.
The long term Stochastic (50,10,10) is getting close to oversold territory – but could remain there for some time.
The DPO remains well into bearish territory. Until it breaks back above, at least, its 20-Week MA (mid-line of the Bollinger Bands), it’s best to consider the bear is still in charge.
AUSTRALIAN MARKET: DAILY CHART – XJO
Recent activity in the XJO has taken on the appearance of a descending triangle. These have a 2/3 chance of breaking lower, and 1/3 chance of breaking higher above the restraining line of the descending triangle. If we get a break higher, we should see a substantial rally.
This week, we saw a false break below support, which was recovered the next day. False breaks often result in strong reversals to the upside. So, if we break above both horizontal resistance, and the short term oblique restraining line marked on the chart, we could see a tradable rally to the upside. But – the Index still has formidable resistance overhead.
ASX 100 – STOCK RATINGS.
Below are listed the Ten Best Stocks and Ten Worst Stocks in the ASX100.
- TPG – TPM Telecom. Above 200-Day MA. New 52-Week High.
- MPL – Medibank Private. Above 200-Day MA.
- GNC – Grain Corp. Above 200-Day MA.
- IPL – Incitec Pivot. Above 200-Day MA.
- NCM – Newcrest. Below 200-Day MA.
- TWE – Treasury Wines. Above 200-Day MA. New 52-Week High.
- REC – Recall Holdings. Above 200-Day MA.
- ALL – Aristocrat Leisure. Above 200-Day MA. New 52-Week High.
- REA – Real Estate Services Group. Above 200-Day MA (just).
- QAN – QANTAS. Above 200-Day MA.
The ratings provide a medium term guide as to performance. The 200-Day MA provides a dividing line between long term bull/bear market. Nine out of ten are above their 200-Day MA. This gives some idea of how important the 200-Day MA can be. It is a blunt instrument – but provides an initial guide. (Compare the results for this group, with the group below.)
Ten Worst Stocks (Starting with the lowest rated):
- ORG – Origin Energy. Below 200-Day MA. New 52-Week Low.
- STO – Santos. Below 200-Day MA. New 52-Week Low.
- WOR – Worley Parsons. Below 200-Day MA. New 52-Week Low.
- S32 – S32. Below 200-Day MA. New 52-Week Low.
- CSR – CSR. Below 200-Day MA. New 52-Week Low.
- AWC. Alumina. Below 200-Day MA. New 52-Week Low.
- ANN – Ansell. Below 200-Day MA.
- BLD – Boral. Below 200-Day MA. New 52-Week Low.
- PRY – Primary Health Care. Below 200-Day MA. New 52 Week Low.
- LLC – Lend Lease. Below 200-Day MA. New 52 Week Low.
None of the 10-Worst is above the 200-Day MA and nine out of ten registered new 52-Week Lows this week.
Of the ASX100, 47% register above the Zero Line on the Detrended Price Oscillator (Zero being the line between bearish and bullish). DPO is a medium-term indicator. That’s a big improvement over the 33% recorded the previous week. This suggests there is some internal strength appearing in the market not revealed by the modest 0.2% increase in the XJO this week.
24% are above the 200-Day MA. That compares to 20% the previous week The 200-Day MA is a long-term indicator. That’s not much of an improvement in the long term picture. So we can presume we have a counter trend rally in place at this time. Until we have 50% of the stocks above the 200-Day MA – we are still in a bear market.
Six stocks recorded new 52-Week Highs this week. 23 stocks recorded new 52-Week Lows this week. That gives us a new H/L Ratio of 20.7%. Until we get that above the mid-line (50%) we’ll have to presume we’re still suffering bearish pressure.
So, what do we do with this information?
Firstly, only consider strong stocks. My preference would be to look at the 10 Strongest Stocks above (or other stocks that are very close). Certainly, avoid any very weak stocks (e.g., the ten weakest shown above.)
Second, in a bear market a stock in a sideways consolidation or a weak uptrend could still show a strong rating compared to the ASX100. Avoid any stock in a long sideways consolidation or weak uptrend. This can be done simply by a visual check or by looking at an objective measure such as the ADX. If the ADX on the stock is below 20 – discard.
Third, only consider stocks that are above zero on the Detrended Price Oscillator and above the 200-Day Moving Average.
Finally – buy the dips. One way of judging this would be to use Stochastic or Dynamic Zone Stochastic. Wait for it to dip into the bearish zone then rise above it.
Given that our market is in a serious correction, medium term traders/investors might well say – no not for me. I’ll wait until things improve. Fair enough.
AMERICA – SP500 DAILY.
Here’s the daily Chart for the SP500:
The Index has bounced sharply upwards after looking like testing the major horizontal support line.
DPO is close to moving into bullish territory.
Friday’s action was dramatic. The Dow Jones was down nearly 300 points at opening after a very poor Employment Report. It quickly rose upwards and finished up +1.43%.
I’d treat that figure with respect as N/L Ratio on the NYSE fell to 4.3% from 5.5% the previous day, i.e., New Lows increased while the market rose. Computer says: Does not Compute. H/L Ratio is not confirming the big up day.
AMERICA – RETAIL SENTIMENT
The above chart is developed from data collected by the American Association of Individual Investors. AAII survey members each week to determine whether they are bullish, bearish, or neutral. The above chart shows the net difference between bullish and bearish responses. This data comes out on Thursday, so it lags events in the American market.
Sentiment fell into bearish territory this week, but is still well above the level seen back in 2013. Until we get all the bulls washed out of the retail investors, I doubt we’ll see a meaningful return to bullish conditons.
Maybe this group is a very savvy lot – and those figures are predicting a big rise in the SP500. That’s not usually what happens with this group.
World markets are in bearish trends and currently in short term consolidation patterns at the low ends of those trends.
Currently, the Australian market is undergoing a big correction. Only 24% of stocks from the ASX100 are above the 200-Day MA. That’s an extremely bearish reading. If we climb back above 50%, we can consider the correction over.
The H/L Ratio on the ASX100 confirms those figures. New H/L Ratio 20.7%.
There are some signs that we could see a meaningful rally in the near future. The major horizontal support line is currently holding after six weeks of testing. This week saw a false break below that support level, but the XJO recovered the next day. False breaks often result in swift moves to the upside.
The Dynamic Zone Stochastic has squeezed tightly together. A break higher from that squeeze could result in a meaningful rally.
It’s possible, of course, for the market to turn lower and break support. If that happens we’ll be looking probably at another serious down-leg.
Below are relative strength ratings and other information on the 100-Leaders (ASX100).
|New Highs & New Lows||Stock||RS||DPO||200 MA|
|52 Week high||ALL||0.9471||Pos||Yes|
|52 Week Low||AWC||-1.1493||Neg||No|
|52 Week Low||BEN||-0.7538||Neg||No|
|52 Week Low||BHP||-0.403||Neg||No|
|52 Week Low||BLD||-1.0606||Neg||No|
|52 Week Low||BOQ||-0.4438||Neg||No|
|52 Week Low||CBA||-0.1795||Neg||No|
|52 Week High||CIM||0.8035||Pos||Yes|
|52 Week Low||CSR||-1.1894||Neg||No|
|52 Week Low||CWN||-0.6585||Neg||No|
|52 Week Low||IAG||-0.5077||Neg||No|
|52 Week Low||LLC||-0.8108||Neg||No|
|52 Week Low||NAB||-0.0613||Neg||No|
|52 Week High||ORA||0.801||Pos||Yes|
|52 Week Low||ORG||-2.5327||Neg||No|
|52 Week Low||ORI||-0.2567||Neg||No|
|52 Week Low||PPT||-0.0211||Neg||No|
|52 Week Low||PRY||-0.8229||Neg||No|
|52 Week Low||RIO||0.0368||Neg||No|
|52 Week Low||S32||-1.2117||No||No|
|52 Week Low||STO||-2.0502||Neg||No|
|52 Week Low||SUN||-0.2783||Neg||No|
|52 Week High||SYD||0.7676||Pos||Yes|
|52 Week High||TPM||1.6158||Pos||Yes|
|52 Week High||TWE||1.3459||Pos||Yes|
|52 Week Low||WBC||-0.2029||Neg||No|
|52 Week Low||WOR||-1.3787||Neg||No|
|52 Week Low||WOW||0.1255||Neg||No|
|52 Week Low||WPL||-0.2294||Neg||No|
DJ +1.23%. SP500 +1.43%. Nasdaq +1.74%. New York Composite +1.55%, Russell2000 +1.51%. The Dow Jones was down nearly 300 points at the opening after a poor Jobs Report, but quickly recovered to be up about 200 points at the close. That’s a massive turn around.
I’d take the positive % numbers out of America with a pinch of salt, as New Lows actually increased on the NYSE and remained flat on the Nasdaq. NYSE H/L Ratio came in at just 4.3%. It was 5.5% yesterday. Nasdaq H/L Ratio was 7%. Yesterday it was 9.01%. We need to see much better figures than that before throwing our hats in the air.
Here’s a regular candle stick chart for the SP500:
DJ -0.08%. SP500 +0.2%. Nasdaq +0.15%. New York Composite +0.22%, Russell2000 -0.28%. The American indices were more or less flat after being well down in the lunch session.
NYSE H/L Ratio came in at just 5.5%. Nasdaq H/L Ratio was 9.01%. We need to see much better figures than that before throwing our hats in the air.
The American markets were affected largely by a poor manufacturing index reading. Last month was 51.1: this month 50.2 against an expected 50.6. Friday is Jobs Report Day. A poor figure in that and the Fed could be revising their desire for a rate rise.
Here’s a regular candle stick chart for the SP500:
The XJO continued its rebound today, up +1.8% after the previous day’s +2.1%. That’s almost +4% in two days.
Volume today was below average. That probably means that trading was mostly done by institutions (professionals) while retail investors (amateurs) remained on the side lines. That’s a positive for the market.
Here’s a Heiken-Ashi Chart for the XJO:
Today’s Heiken-Ashi Candle is a flat-bottomed candle with an upper tail. That indicates that the Index is in a short term upside movement.
That doesn’t mean that anything much has changed in the bigger scheme of things.
The Chart remains below the descending trend-line from 28 August. The Detrended Price Oscillator remains below Zero but getting close to an upside break-out. Dynamic Zone RSI is above its upper band – so we could see more upside if this is a momentum movement.
Until we see at least a break to the topside of the 50-Day MA, I think this market continues to deserve respect – bearish respect.