- Global Performance: Weekly Chart
- Australian Market: Weekly Performance Chart
- Australian Market. XJO – Monthly Chart
- Australian Market. XJO – Weekly Chart
- Australian Market. XJO – Daily Chart
- Dow Jones Industrial Index
- Base Metals and Gold
- Summary and Conclusion
GLOBAL PERFORMANCE – WEEKLY
The melt-down in the Chinese market continued this week (down -7.35%). Chinese authorities are starting to hit the panic buttons and introducing measures to halt the fall. That’s probably as likely as King Canute holding back the see, or the Bank of England staving off George Soros. (See the Chart below for China for further commentary.) All indices were negative. Australia was the best of a bad mob, down marginally -0.14%
AUSTRALIAN MARKET: WEEKLY CHANGES
The broad market index for Australia (XAO) was down this week -0.15%. The best performers were Industrials +4.58% and Consumer Discretionary +0.99. The worst two were Materials -2.49% and Telecoms -1.18%. Telecom Sector was one of the best performers in the previous week, this week one of the worst. Once again we’re seeing the phenomenon of no follow-through momentum which is typical of bear markets.
Five Sectors were up. Five Sectors were down. That’s about what is expected in a week which was relatively flat.
AUSTRALIAN MARKET: MONTHLY CHART – XJO
After three trading days in the new month, our market is up +1.45%. It’s too early in the month to be making judgements about direction.
At the end of June, the Chart and indicators suggested caution. Perhaps very long term investors might take some defensive action. MACD Histogram has broken below its zero line. Trix has crossed below its signal line. Dynamic RSI is in bear territory. At the end of June, RSI was below its mid-line, but in the past three days has nudged back above that marker. CCI is hovering just above its zero line. Its the only indicator in this group still showing bullish sentiment.
Major indicators which provide “sell” signals, are still not negative. 10/20 Monthly MAs still haven’t crossed over negative. Currently, the 10MMA>20MMA. So that is still a bullish profile. Super Trend Line still hasn’t flashed a sell signal – it needs to turn blue for that to happen. These indicators rarely give out signals, but keep very long term investors out of the worst secular bear markets and into the best secular bull markets. Signals from these indicators tend to lag the market sometimes by many months, which is a good thing – as they filter out the noise. But they can also test the patience of investors if they watch the market day-to-day.
If the 10-Month MA crosses below the 20-Month MA we could be looking at a major bear market. That doesn’t appear to be imminent any time soon.
AUSTRALIAN MARKET: WEEKLY CHART – XJO
This week’s candle is a doji with a long lower tail indicating intra-week buying pressure. This sort of candle often occurs at the end of trends. (I’ve circled a few other examples on the chart.) As this has occurred with a sharp bounce off the 100-Week MA, this gives hopes of a reversal to the upside. We need to see a good follow-through week next week. It seems poised nicely to take advantage of a positive response to the weekend Referendum in Greece.
XJO down this week -0.14%.
AUSTRALIAN MARKET: DAILY CHART – XJO
The Australian market was down strongly on Monday, then had three very strong days on Tues/Wed/Thurs, then fell heavily on Friday. Friday’s action had some positives as the market was down -1.8% but finished down only (only!) -1.1%. A nice rebound intra-day but not enough to count as a reversal day, which requires more than half the intra-day losses to be regained.
Of some note, however, was action in the UpVol/(DownVol+UpVol) Ratio. It was above 80% on two days during the week. That suggests strong accumulation by the “smart money”. That doesn’t mean we’ll be immediately up (as we saw with Friday’s negative result), but it is a very strong vote of confidence for the next couple of months.
AMERICA – DOW JONES INDUSTRIAL
The DJ30 was down this week, -1.21%. It had a very poor day on Monday -1.95%. It bounced off a minor horizontal support level and, more importantly, off the 50-Week MA. It is by no means out of the woods. On Friday, it stalled at horizontal resistance which is the neckline of a long-term but narrow Head/n/Shoulders Pattern. So we have a test of that important structural feature. Again, we have a chart poised to take advantage, one way or the other, of weekend events in Greece. A significant move above that resistance level – and the recent weakness should be over. A failure here should see the chart fall to the measured move marked on the chart.
Here are a couple of charts that suggest that the current pull-back is over.
The first is a ratio chart of VIX/VXV. VIX is the one-month implied volatility of Index Options on the SP500. VXV is the three-month implied volatility of Index Options on the SP500. The Ratio thus provides a structural view of the thinking of options trading near-term compared to further out. When the Ratio rises above one, then falls below it, usually a pull-back is over. In recent times it has had a good record.
The second is the New York McClellan Oscillator. NYMO is basically a measure of market breadth. (It’s a complicated formula, which I won’t spend time on here.)
Any time in the past six months that the NYMO has fallen below 50 and rebounded we’ve had a short term move to the upside. For more extended downside moves, sometimes NYMO needs to fall below 80 and then rebound for the retracement to be over.
None of these things are perfect, but the probabilities for the American market lie to the upside. We need to see a break above the neckline of the H/n/S formation to feel sure.
CHINA88 – Weekly Chart
The Chinese Index (made up of A Shares on the Shanghai and Shenzen stock markets) has had three weeks of massive falls. It is now back to an important S/R Line. On the Daily Chart (not shown), indicators have set up positive divergences, so this looks like a place where the Index will bounce.
It is, however, looking like a classic bubble chart.
Here’s the classic bubble chart:
The chart is probably around the area pointed to by the big bold arrow.
If this is a classic bubble, we’ll know soon enough if the Chinese market bounces around here – reviving bullish talk – and then falls below the new low which has been formed. Given the measures taken by Chinese regulators to support the market, a bounce here seems likely. A bounce and then a fall below this level, and then, it’s All Over Red Rover.
METALS AND GOLD.
Base Metals have been in a steep down trend for about two months. It is very oversold and seems to be forming a small base. An upside move is possible, but needs to prove itself by a break above the Super Trend Line and the next line of resistance. Watch.
Iron Ore had a big fall on Thursday night down more than -5%. It is now back in a clear short term down trend.
Gold has been in a sideways movement since March. It often starts a seasonal bull rally in June. There’s no sign of that yet.
The chart has broken horizontal and oblique support, so further downside seems likely. The strong positive divergence setting up on the MFI suggests, however, that the recent bearish break could be a furphy. Watch.
SUMMARY & CONCLUSION
World Markets: First, a weekly summary of major world stock markets: Australia XJO -0.14%. German DAX -3.78%. U.K. -2.49%. SP500 -1.18%, Japan -0.8%. China88 -7.35%. Emerging Markets ETF (US$) -0.38%. Global Dow (US$) -2.19%. Australia was the best of a bad mob.
Looking back over my writings this week, we can see that matters are at an inflection point. A good reaction to the Greek events this week-end should see us move up. Looking under the bonnet at things like breadth, volume and volatility studies, the probabilities lie to the upside.
July has a good recent record in Australia, five of the last six July results have been positive. The accumulation evident this week in our market suggests confidence returning to our market. Any pullback from here as a result of the Greek events is likely to be short-lived. If the reaction is positive, we’re likely to see a very positive, sharp move to the upside.
Both the American and Chinese markets are set up to move to the upside. So the near-term risk from the Big 2 seems small.
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Happy Independence Day to our American friends.
Not much to report on with America closed.
Here’s some charts from Europe:
Germany -0.37%. UK -0.67%. France -0.57%. Italy -0.48%.
Nothing too dramatic there.
Here’s a detailed chart for the German DAX:
With dual support (horizontal and oblique) it should bounce higher here. It doesn’t have to. Reaction to the Greek Referendum will be important.
If it does fall (unlikely) – then back she goes to the support line of the down trending channel?
American and European Major Indices
Big moves on European markets. Germany -0.73%. UK +0.33%. France -0.98%. Italy -1.43%. Euro zone countries well down, but UK was up modestly. Candles in the four indices are “inside” condles – denoting indecision.
XJO up +1.52%. Volume improved on yesterday, so some mums and dads are piling in.
UpVol/(DownVol + UpVol) was again very high at 80%. So there’s no doubt in my mind that this is accumulation. It’s influence will be felt for many weeks ahead.
I thought today we might see a slackening in the upside momentum, but rather than slackening it surged ahead. We’ve now had three days of strong upside advances. 3-4 days in one direction is about the norm. So we might see some slowing of the action in the next couple of days.
Tonight the Europeans have slowed down. Germany currently flat and France down marginally.
American and European Major Indices
Big moves on European markets. Germany +2.15%. UK +1.34%. France +1.94%. Italy +2.15%. Indices remain at or below their 20-Day MA, which is below their 50-Day MA. This remains a bearish profile
XJO up +1.04% on below average volume. That’s not a problem.
The index is back above the first line of resistance. That’s positive.
Indicators have turned up and generally showing positive divergences. AOK.
A.VIX has fallen below the previous high – so fear is dropping out of the market. It is still elevated but the trend is to the downside.
Digging through all the data I collect revealed an interesting item.
Here’s the Ratio Chart for UpVol/(DownVol+UpVol), i.e., the % of Volume going into Advancing Stocks compared to the Volume going into all stocks Advancing and Declining.
Today’s UpVol/(DownVol+UpVol) went above 80%. That’s only the fifth time in the past two years that’s occurred.
There tends to be a seasonal factor in this data – two of the instances were in the end of year holiday period. That’s a period that tends to be bullish and also affected by low overall volumes.
The previous two instances are more interesting.
They occurred at the end of the big May-July 2013 pull-back.
Such a high ratio is an indication of accumulation by the “smart money”.
That doesn’t mean we’ll see a big up day tomorrow. But the chances of the market being higher in two months time are enhanced. We might need to see another such instance to be sure about this – but at this stage it is looking very likely that big money is in an accumulation phase. That’s great for the hopes of a sustainable bull rally.
American and European Major Indices
The rate of descent slowed in Europe. France and Italy both showing tombstone dojis. These sometimes come at the end of a down trend – but need a big up day to confirm. Germany -1.25%. UK -1.5%. France -1.63%. Italy -0.48%