Weekly Wrap, Week ended 29/10/21. The week when fortunes changed on the Australian stock market.
Here's the Weekly XJO Chart:
The weekly candle is a bearish engulfing candle and the chart remains below the trend spotter, the Supertrend 1.5/7 which has been bearish since the week of 20 September, 2021. XJO down -1.24% for the week.
Daily XJO chart:
On the Daily Chart, we can see the importance of the 50-Day Moving Average - that's the curved blue line.
50-DMA provided support during pull-backs in May and July. In late August, XJO broke clearly below the 50-DMA. XJO then bounced but hugged the underside of the 50-Day MA. That then fell lower to set up a bear market into the end of September and early October.
The resulting rebound looked promising - breaking above the Trend Spotter - Supertrend 1.5/7 and the 50-DMA.
XJO went into a topping pattern with a triple top sketched out Monday-Wednesday this week. That finally acceded to Friday's big down movement with XJO down -1.44% and clearly breaking down from its previous bullish structure. We may now see a rebound like we did in early September to test the 50-DMA as resistance. Watch this space.
One Week Sector Changes:
On Friday, all sectors were down. For the week, only two sectors were up - both defensives - Health +1.32% and Telecommunications +0.48%.
The worst performing sector was Consumer Staples -4.06% after A2M had a massive fall on Wednesday. It wasn't helped by a less than inspiring report from Woolworths.
The two dominant sectors in the ASX are Financials -0.87% and Materials -2.16%.
NewHighs-NewLows Cumulative.
For long-term investors, this is the most important chart to watch.
While the NH-NL remains above its 10-Day MA, long-term investors might feel comfortable in holding their investments. If it breaks below the 10-Day MA, they might then take defensive action.
This chart has kept investors in this long bull market dating back to mid-2020. It looked precarious recently when the XJO pulled back, but the NH-NL CUM didn't cross below its 10-Day MA. The two lines are once again pulling back towards each other. Much more downside, and it might be time to take defensive action.
Advances-Declines Cumulative
A-D Cum provides one of the best leading indicators for danger in the market.
With A-D Cum breaking below its 10-Day MA, it is once again signalling problems ahead for the Ozzie Market.
Strong Stocks v Weak Stocks.
This is a development of my own making. I mark up all the stocks in the ASX100 according to seven criteria. Any stocks positive on all 7 criteria are regarded as Strong Stocks (SS). Any stocks negative on all 7 criteria are regarded as Weak Stocks (WS).
This week saw a dramatic turn-around in the SS v WS. In the previous week the Ratio was 19/4 and hasn't been negative since the week of 14 May. This week the Ratio of SS v WS was 4/11. Now, it could be that this is a one-off. But given the structural damage to the XJO we might see weakness in our market through November.
Conclusion:
Friday's attack on the bond market reverberated through the stock market. Causing big falls. It seems that the RBA has given up defending low interest rates. This is the same as if the RBA suddenly, and without warning, raised interest rates. The market has been lulled into complacency by assurances that the RBA will keep interest rates low. With the American Federal Reserve expected to raise interest rates soon. Several countries, notably our close neighbour New Zealand, have recently raised interest rates. The era of free money which has been inflating assets (not only stocks) looks to be ending. We might get a soft landing. We just don't know. But the immediate outlook does not look promising for stocks.
