XJO down -1.25% on high volume compared to the past five days.
Here’s the XJO Chart:
The chart is in a sideways consolidation with support around 5793. The Index finished at 5846.1 today. Resistance lies around 5976.
The increased volume today on a down day suggests a bit of panic selling – that’s usually the time when the smart money begins to pick up stock. If this gets down to the opvious support, I think we’ll see a bounce to the upside.
Here’s the daily Sector Performance Chart:
The best relative performer today was Health (XHJ). Down just -0.18%. Health was helped by RMD up +1.5%.
Energy stocks were hit hard -4.59%. The four worst performers in the Top 100 Stocks were all Energy stocks. Caltex was the worst, down more than -9%.
I wouldn’t be surprised if we get a bounce tomorrow. But I’d like to see that support level tested – and then bounce hard to the upside.
1.Australian Market: Weekly Sector Performance Chart.
2.Australian Market: Weekly Sector Performance Chart for Alternative Investments.
3.Australian Market. XJO – Monthly Chart
4.Australian Market. XJO – Weekly Chart
5.Australian Market. XJO – Daily Chart
6.Australian Market: Health and Telecoms.
7.Australian Market: Improvers – Materials and Consumer Discretionary
8.Australian Market: Alternatives – IOO and IEM
9.US$, Commodities, BHP.
10.America: Dow Jones Industrial Index Weekly
11.Summary and Conclusion
12.Appendix 1 – Diversified Portfolio, Criteria for holding stocks. A Work in Progress.
WEEKLY SECTOR CHANGES
XAO was down this week, -0.8%. Five S&P Sectors were up. Two of those were only marginally positive, Materials +0.01% and Telecoms +0.12%. The biggest sector, Financials, was down -1.59%. Health uncharacteristically performed poorly, -2.25%. Inf.Tech, the smallest sector, was the worst performer -3.2%.
Small Ordinaries, which makes up the smallest 200 Stocks in the ASX300, was up +0.03%. It has a correlation of 0.8 with the Miners and Mining Industry Group (XMM). That means that usually about 80% of the movement in the Small Ordinaries can be explained by a change in the XMM. That’s because the Small Ordinaries has a high proportion of Mining stocks in its composition. The usually high correlation came good this week. Both XSO and XMM were up marginally.
Our market was the captive of overseas actions this week. That’s not always the case. On a 30-Day Basis the Australian market has virtually no correlation with the U.S. Market. The best correlations are currently with the Indian and Indonesian markets.
ALTERNATIVE INVESTMENTS – WEEKLY CHANGES
I use three iShares to measure the performance of Alternative Investments. These shares are tradable on the Australian Stock Exchange and gives investors the opportunity to diversify their portfolios into international shares and fixed income securities.
The Alternative Investments on average were down -1.1%%.
IAF (largely invested in Australian Government Bonds) was down marginally this week, -0.06%
IOO (invested in 100 large international companies) was down -1.67%.
IEM (invested in a range of large capitalisation and mid-range capitalisation companies in Emerging Economies) was down -2.16%.
These three stocks are included in my experimental Diversified Portfolio (see below) because of their low correlation with the Australian Market.
MONTHLY CHART – XJO
We’re now almost to the end of the month, two trading days to go. XJO down marginally so far this month -0.45%. The long lower tail on this month’s candle indicates the buying pressure that has come into the market. Next week needs to be strong.
The chart is having difficulty getting above the high of last month. This week’s close is now above the close of February, but only marginally. After last month’s strong performance, this month’s pause is no surprise. The doji candlestick represents indecision. A big down month next month would be bearish. A big up month in April would be bullish.
Currently, with the chart well above the 10-Month Moving Average, there’s no need for concern. The long term trend is up and should continue until proven otherwise.
WEEKLY CHART – XJO
XJO down this week -0.97%.
1.MACD Histogram. Above zero. Positive. But falling.
2.MACD. Above zero. Positive.
3.RSI.9 is at 65.2. Falling below 70. Caution.
4.CCI.14: +76.4. Falling below +100. Negative.
5.Stochastic: +88.5. Overbought. Falling below its signal line. Caution.
Indicators are signalling caution. Momentum is flat – see stochastic. RSI and CCI both show negative divergences.
XJO 6000 is proving illusive. The XJO almost made it four weeks ago. Another battle line now lies at 5920. That’s now support. A break below that could see the August, 2014 highs tested.
If 5920 breaks, the line of least resistance is down. Indicators, particularly the Stochastic, are still at elevated levels. With the Stoch up there above the overbought level (80) it’s difficult to make a buying decision before we see some more pull-back.
DAILY CHART – XJO
XJO hovered in a narrow range from Monday-Wednesday, then collapsed on Thursday. A little of that ground was made up on Friday. The medium term is still undecided. Long term it is up. We would need to see a break below 5793 to confirm a change in the medium term trend. A break below that level would also complete a large double top. At this stage, the odds of that happening are about 40%. So the odds favour a bit more downside but the XJO will probably remain in a sideways consolidation
1.MACD Histogram. Below zero. Negative.
2.MACD. Above zero. Negative divergence.
3.RSI.9 is at 53. Neutral.
4.CCI.14: +30.9. Positive but heading down.
5.Stochastic: 71.2, Below 80 and its signal line. Anything is possible – but until this gets below 20 and rises above that level, I think
Anything is possible – but until this gets below 20 and rises above that level, I think it’s best to stand aside.
We would need to see a break below 5793 to confirm a change in the medium term trend. A break below that level would also complete a large double top. At this stage, the odds of that happening are about 40%. So the odds favour a bit more downside but the XJO will probably remain in a sideways consolidation.
HEALTH (XHJ) and TELECOMS (XTJ)
Health (XHJ) and Telecoms (XTJ) remain the two best performing sectors over the past six months. XHJ is by far the best performing sector in the market in the past six months (and the past three years), up nearly 30% in that time, while the All Ordinaries is <10%. This month’s candle is a shooting star which is potentially bearish. Resmed, however, which is the third largest stock in the Sector, rose very strongly on Friday night in America. If that momentum carries over to Australia (likely), then the XHJ monthly candle could easily look stronger by the end of the month.
Telecoms Sector has now started to come back to the pack. It is now up about 20% in the past six months. It’s performance in the past two months has been less than stellar. XFJ (Financials) as at the end of this week is just -0.3% behind Telecoms over the past six months. So it will be interesting to see who has their nose in front at the end of the month.
These two sectors are clearly dominated by single stocks. In the case of Health, CSL is by far the biggest stock, and in Telecoms other stocks are dwarfed by Telstra.
If Telstra continues to weaken, I might be looking at replacing it in the Diversified Portfolio, to be replaced by CBA.
AUSTRALIAN MARKET: MATERIALS (XMJ) AND CONSUMER DISCRETIONARY (XDJ)
Materials had a good month in February, up +11.7%. This month the index is down -6.4%.
BHP, the largest stock in the Sector, did even better in February, up 15% but has fallen -8.6% so far this month.
Consumer Discretionary was the second best performing sector during February, nudging out Energy. XDJ was up +7.16%. This month it is down, -1%. Crown Resorts is the largest stock in the sector by capitalisation. CWN is down 13.3% so far this month. The monthly candle is showing a bearish engulfing candle – so the prospects for CWN aren’t good.
At this stage, Consumer Discretionary is negative for the month, and lagging well behind several other sectors. At this stage the two best performers are Inf.Tech and Industrials, followed closely by Financials.
It seems certain that BHP and CWN will be replaced in the Diversified Portfolio at the end of the month. The experience this month has also made me revise my thinking on how to manage the short term Stocks in the DP. (See below.)
ALTERNATIVES – IOO & IEM
As mentioned previously, iShares provide Australian investors the opportunity to invest in overseas markets – and are a cost effective method of doing so as iShares are tradable on the Australian stock exchange.
Looking at the two stocks, it can be seen that both IOO and IEM have been in strong uptrends since mid-2011. IOO has performed the better of the two. This month IOO is down -2.27%. IEM is down -3.64% this month. Both, however, remain above their 10-Month Mas.
Both shares have been in strong up trends for most of this year. There doesn’t appear to be much more upside at this stage. But, unless something catastrophic happens we’ll maintain holdings in these two stocks as long term investments.
Falls in the Australian $ help both of these stocks as they are unhedged for currency effects. They are, at least in part, a bet on a rising US$. For much of this month, the US$ has been falling, and that has been a negative for these two stocks. With the U.S. likely to rise rates some time this year, and Australia likely to lower rates, the previous situation of a falling AUD/USD is probably going to continue.
I don’t have detailed charts for the third Alternative Investment, IAF – Australian Bonds. But so far this month it is up +0.2%, and serving its function to even out volatility.
US$, Commodities, BHP
The first chart is a comparative chart of Commodities (DBC), US$ (UUP) and BHP as traded on the American market.
BHP and Commodities are clearly well correlated – and both are inversely correlated to the US$. While the US$ continues to rise, we can’t hold out much hope for our Miners. The week before this week, the US$ entered a short term down trend. And, as a result, BHP and Commodities both rose. That hasn’t lasted in the past week, and both BHP and Commodities both fell.
The US$ (lower chart) has been in a strong up trend for nearly a year. It is now well off its highs, but still above the 10-Week MA (greay dashed line) and above the first line of support. While those two provide support – we’ll have to presume that the current pull-back is just necessary after a long and strong up move.
As mentioned in the above section, the relationship between Australian interest rates and American interest rates is unlikely to prove beneficial to investors in our commodity related stocks.
AMERICA: DOW JONES INDUSTRIAL
Dow30 down this week,-2.29% . The medium term trend is still undecided. The long term trend is up.
Indicators on the weekly chart have turned down and showing negative divergences. The odds are tilting to the bear side, but not yet decisive.
The correlation between the XJO and SPX is poor – MacroAxis rates it as insignificant. So don’t put much weight on that as a guide (despite what the media will tell you.)
But the effect of the US$ and commodity prices certainly has a close relationship with the direction of our mining companies.
If, however, the U.S. has a mjor turning point – that usually affects most markets in the developed world
SUMMARY & CONCLUSION
First, a weekly summary of major world stock markets: Australia down -0.93%. German DAX down -1.42% (looks toppy) after 10 weeks up in a row. U.K. down -2.39%. SP500 up -2.23%, Japan down -1.4%.China88 up +0.97%. Emerging Markets ETF (US$) down -1.55%. Global Dow (US$) up -1.78%.
Commodities and Currencies.
Copper Futures up +0.24%, but showing a massive “smoke stack” which is rarely bullish. GLD (ETF for US$ Gold) up +1.31%, Crude Oil +4.94%. Oil got a boost from the Yemen conflict but fell back heavily when it looked more like a storm in a tea-cup than a Category 5 Cyclone. DBC (tracking stock for commodities) down -0.17%, heavily influenced by action in the oil price. AUD/USD down -0.28% (and another bearish smoke stack).
This week has been largely correlated to the down-side in country indices and commodities. China, a beneficiary of weaker commodity prices, is an obvious exception. Crude oil was up 4.94% on the week but was up almost 10% at one stage, but came under heavy selling on Friday. Gold is the other obvious exception. But it hardly looks robust, and is in a secular bear market.
I’d expect our market to be lower coming into the end of March, but might get a boost later in the week as new money is employed by fund managers at the beginning of the month. I can’t, see a lot of hope, however, for our miners.
For daily updates – check https://redbackmarketreport.wordpress.com/
APPENDIX – DIVERSIFIED PORTFOLIO
The Diversified Portfolio breaks down into two groupings – investments which will be adjusted according to different criteria.
GROUP ONE: STW, IOO, IEM, IAF. To be rebalanced quarterly so as to maintain equal weightings. Any variance less than 5% and the holdings will be left as is so as to reduce costs. Exit any of these stocks if they fall below the 100-Week MA – that’s to avoid catastrophic events such as occurred in 1987 and 2008. (I’m going to revise this criterion – but, at this stage, I’m still working on ideas.)
GROUP TWO: The holdings in this group are dynamic, and can be broken down into two sub-sections:
- A. Short term Holdings. Based on the best two performing Sectors in the previous month. Hold for one month. (1/1) For March, the two stocks to be held will be BHP and Crown (CWN). New Criteria – Don’t enter if the daily Heiken-Ashi chart for the Stock shows a bearish candle. Exit any stock bought if a bearish Heiken-Ashi candle appears. Re-enter if a bullish Heiken-Ashi candle appears
- B. Medium term Holdings. Based on the best two performing Sectors in the past six months. Hold for one month. (6/1) For March, the two stocks to be held will be CSL and TLS. New criteria – exit if the weekly Heiken-Ashi chart for the stock shows a bearish H-A candle.
As a result of experiences this month, it was clear that Group Two stocks needed more quick responsive action if losses were to be contained.
Since inception on 9 February, the DP is down -1.7%, while the XJO (the benchmark) is up +1.01%. The DP was affected adversely by big falls in BHP and CWN this month. But despite those falls, there still isn’t much difference between the DP and the XJO. That attests to the advisability of diversification. If management of the short term positions can be improved, we should be able to improve the overall standing of the DP as compared to the XJO. (Let the winners run, and cut the losers short.)
This is a mish-mash of stocks and ETFs. It is also a mixture of long term holdings and shorter term holdings. It includes Australian stocks and International stocks. It involves some stocks basically using a buy-and-hold strategy, Group A – rebalanced quarterly if necessary. Group B is a set of four stocks which will change over time depending on the best performing momentum stocks. This is a dynamic group, constantly changing.
This portfolio is not a recommendation for anybody. The ideas are a work-in-progress, i.e., they are experimental, adjusted with the experience of hind sight. This is, of course, open to the charge of “curve fitting”. OK. If that’s the case. So be it. But, I’ve made the adjustments on the basis of general principles – not in order to fit the curve. Let’s see how it plays out.
American Major Indices:
SP500 +0.24%, Dow Industrials 0.19%, Nasdaq +0.57%, Russell 2000 +0.68%, New York Composite +0.09%.
We needed to get a big up day today to complete a 3-Day Bullish Candle Reversal. We didn’t get it. In fact, for most of the day until the last half hour, America saw a narrow range, extremely choppy day. The last half hour saw a surge off the back of M&A activity. That’s usually a short term effect, until the next one comes along. So, we’ve got consolidation at the lows. At a desirable result. There’s still the possibility that we get a big up day on Monday to complete a 4-Day Bullish Candle Reversal.
Here’s the detailed chart for Dow Jones Industrial:
Indicators are mildly oversold – but probably not enough to generate a rebound. It’s possible, but not probable. The chart is at the mid-March lows, so that adds to the possibility of a move up. Let’s wait.
DBC (Commodities tracking ETF) -2%. DBE (Energy tracking ETF) -3.75%. DBB (Industrial Metals tracking ETF) -0.72%. Precious Metals -0.58%. GLD -0.36%. US$ +0.08%. The boost that oil and other commodities got from the Yemen issue disappeared today. That’s no black swan. So traders took back the gains made yesterday based on fear. A slightly stronger US$ (UUP) didn’t help
Oz Stocks in NY:
BHP -1.98%. Rio -1.97%. Westpac -0.88%. ANZ +0.16%. Resmed +1.85% EWA -0.97%. Ozzie Dollar -0.89%. It seems the Americans weren’t convinced by the rally in Australia yesterday (XJO +0.69%). After accounting for the fall in the Ozzie Dollar, those results for Oz Stocks are dismal, except for Resmed. This is the first time I’ve included Resmed in this group of stocks. Given that Health has been the best performing OZ Sector for the past three years, I thought I should add Resmed to this group, The Resmed result augurs well for the Health Sector on Monday.
American Major Indices:
SP500 -0.24%, Dow Industrials -0.23%, Nasdaq -0.27%, Russell 2000 -0.15%, New York Composite -0.3%.
Last night, the Dip Buyers were out. The market was well down early in trading but rose into positive territory in the early afternoon. A bit of selling came into the afternoon to take the numbers back into negative territory.
Here’s the detailed chart for Dow Jones Industrial:
Last night, the Dow dropped below dual support (oblique and horizontal) and then recovered. The candle is a bullish reversal candle. It needs confirmation with a big up candle in the next session. After four days down, some upside can be expected. So far, the short term trend is down, the long term trend remains up, and the medium term is in limbo land. If dual support is broken in the next couple of days, we’re likely to see more down side.
DBC (Commodities tracking ETF) +1.21%. DBE (Energy tracking ETF) +3.18%. DBB (Industrial Metals tracking ETF) +0.72%. Iron Ore -1.3%. Precious Metals +0.67%. GLD +0.65%. US$ +0.35%. Commodities up despite the US$ also being up. Something’s out of kilter.
Oz Stocks in NY:
BHP -1.03%. Rio -1.34%. Westpac -1.38%. ANZ -1.83%. EWA -0.96%. Ozzie Dollar -0.18%. Those falls more or less follow what happened in Australia on Thursday, so not much help.
Today? Don’t know. Probably up a bit. What happens here might be a pointer to NY tonight.
The recent run of narrow range days gave way today to a big downside day. XJO down 1.56%
Here’s a Heiken-Ashi Chart for the XJO.
H-A Charts tend to average out a couple of days’ readings on the market. There was no equivocation about today’s action – it was down. That starts a new short term down trend.
Indicators have turned down. More downside seems likely.
The best performing sector today was the Energy Sector as a result of the oil price turning up. If you must take a punt – then maybe that’s the sector to look at. BPT today was one of the few large cap stocks to turn in a positive result.
Here’s the BPT chart:
It’s now at resistance, and mildly overbought. BPT up 4.85%. BPT has been in a long term down trend. This looks like a counter trend rally. I’m not convinced. But WDIK.
American Major Indices:
SP500 -1.46%, Dow Industrials -1.62%, Nasdaq -2.37%, Russell 2000 -2.34%, New York Composite -1.11%.
Dow 30 and SPX both broke their 50-Day MAs. Others are below their 20-Day MAs.
Here’s the detailed chart for Dow Jones Industrial:
The long term trend is up but only just. A break below the support of the up trend line from October, and this could get a tad nasty. Today was bad – so we might see an easier day tomorrow. Today’s candle is the first bearish H-A candle – rarely do we get just one. So more down side seems likely. That brings the blue 100-Day MA into contention.
DBC (Commodities tracking ETF) +0.29%. DBE (Energy tracking ETF) +0.75%. DBB (Industrial Metals tracking ETF) -0.59%. Iron Ore -0.2%. Precious Metals +0.16%. GLD +0.14%. US$ -0.27%. These charts show how the US$ (UUP) moves inversely to the commodities.
Oz Stocks in NY:
BHP -1.1%. Rio +0.6%. Westpac -0.07%. ANZ +0.17%. EWA -1.12%. Ozzie Dollar -0.38%. Despite a generally weak US$, the Ozzie fell even more (against the trend) against the greenback.
Clearly we’ll be down today.
Rule for today: sell every rebound until proven otherwise.
Today the market was generally weak, only held up by Financials (+0.4%) supported by Consumer Discretionary (+0.5%). Seven out of ten sectors were down, with the only other sector on the plus side – Utilities +0.2%. That’s not a sector profile which suggests a robust bull market. If Financials give up the ghost – look out below.
Here’s a Heiken-Ashi Chart for the XJO.
H-A Charts tend to average out a couple of days’ readings on the market. The past couple of days shows an indecisive market. We need to see a doji candle to suggest a reversal, we’re still not into that condition yet.
Some indicators are mildly overbought (Stochastic and CCI). The chart lies at horizontal resistance. The odds favour some more indecision here or perhaps a mild pull-back. Any pull-back is likely to be limited to the recent lows.
Here’s the XMJ Chart (Materials):
It’s on a short term buy signal and seems to have some more upside built into its momentum. Today’s candle suggests indecision.
XMJ is now at horizontal resistance and the 50-Day Average. Anything can happen with that sort of dual resistance. It is currently in a short term uptrend, but the medium term is still down. It seems to me the most likely scenario is a pause in play, followed by more upside. A major down day could change that opinion. We didn’t get a major down day today.
Here’s XTJ (Telecoms):
Telecoms down marginally today -0.15%. The chart seems to be stalling at dual resistance. The chart is in a short term up trend but the chart is stalling at dual resistance. A couple of indicators are mildly overbought. Again – some sort of pause or a small pull-back seems likely.
Heres the Consumer Staples (XSJ):
XSJ was down modestly today -0.28%. We’ve now had three doji candles in arow. There’s not much happening at this stage in the XSJ. It is in a sideways consolidation after a major down turn. The next most likely move is down. Anything can happen. If we get a solid bounce off the current support levels – we could see an attempt to make up the recent big fall. The most likely scenario is a break below that big red oblique support line. If that happens – we could see a lot more downside.
Health (XHJ) has been the best performer on the XJO for the past three years. Here’s the current chart:
Anybody betting against Health in the past three years would now have turned a large fortune into a small fortune. The chart shows three doji chndlesticks in a row. The current state of the chart suggests a pull-back is likely. We have some major divergences on indicators which suggest that momentum is weakening.
Here’s the XDJ H-A chart – the best sector performer today. It’s in a good short-term up trend. There’s no suggestion yet that this is weakening. Indicators have plenty of upside so XDJ could continue to positive gains. The biggest risk seems to be ceneral market risk.
I think we’re in for some short-term weakness – probably enough for some anxious bulls to throw their hands up in disgust and say, “This market will never see 6000.” Then we might have a chance of busting through that magical mark.
Here are a few big blue chip stocks. First – CSL:
Today’s H-A Candle is bearish. Indicators have turned down after showing bearish divergence set-ups. More down side seems likely.
Here’s BHP – the third biggest stock on the market and our largest miner:
The long term trend is down, the medium term trend is down. The short term trend is up. Today BHP was down -0.35%. That’s not enough to change the current short term up trend. The Money Flow Index has been weak. That doesn’t instil confidence. Watch.
Here’s Com Bank:
CBA was up strongly today +0.81%, but that wasn’t enough to kick the H-A candle into a bullish profile. Money Flow Index has been week and showing a probable negative divergence. RSI has now reached into the mild overbought level. If there’s more upside in CBA – I don’t think there’s much in the offing.