Weekly Wrap, Week ended 5/11/21.  Spectacular rebound by the XJO

Here's the Weekly XJO Chart:

The weekly candle is a bullish engulfing candle completely nullifying the previous bearish engulfing candle.  XJO up this week +1.82%.  The long-term trend has now been bullish for the past year.

Daily XJO chart:

The rebound this week has been spectacular, largely due to the last three days of the week.

But, XJO appears to be in a range marked on the chart.  It needs to get above horizontal resistance to continue the bullish move of this week.

The 20-Day MA has crossed above the 50-Day MA which is promising.

The medium term trend remains bullish (PRT bands are yellow), so position traders should maintain their current holdings.

One Week Sector Changes:

 

Only one sector was down this week, Energy -1.9%. The relative strengths of the various sectors should, however, give pause for thought.  The four best performing sectors were all defensives Telecommunications +4.64%, Property +4.23%, Health +3.93%, Consumer Staples +3.76%.

The usual chief drivers of our market are, at best, weak, and, at worst, negative.  Financials +0.57%,  Materials +0.3% and Energy -1.9%.

That's not the sector composition we expect to see in a strongly bullish market.

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 apart from each other.  Long-term investments in Index ETFs look safe at this stage.

Advances-Declines Cumulative 

This is another chart which should give pause for thought.  A-D Cum provides one of the best leading indicators for danger in the market.  It hasn't recovered nearly as well as the XJO might suggest.  It remains well below its 10-Day MA.  The XJO is well above its 10-Day MA, while Advances-Declines is well below its 10-Day MA.  With the main drivers of the market this week being defensive sectors and a weak A-D Cumulative, the XJO may be sending a deceptive message about its bullish qualifications.

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 4/11.This week the Ratio of SS v WS was 20/6.  

This is a measure similar to the NH-NL Cum (above).  It's a good guide for position traders rather than long-term investors.  While the Strong-Weak Cumulative chart remains above its 10-Week MA, position traders can continue to hold Index ETFs.  The only time this chart was in trouble this year was back in late March when XJO had a significant pullback.

Conclusion:

Our market regained its bullish credentials this week after suffering a case of the heebie-jeebies after traders attacked the bond market because of inflationary fears.

Those fears have abated this week, but remain lurking in the shadows.

The Federal Reserve announced its long-awaited taper - which didn't spook the markets and the Australian Reserve Bank maintained its long-term low-interest rate policy but jettisoned one of its bond market policies.

Our XJO is now back up to resistance, with notable cautions being issued by sector structure (tending to defensive) and Advance-Decline Cumulatives, which are weak.

I'm not convinced that our market has thrown off its fears about interest rates and inflation - but a rise above resistance should quell those fears, for the time being.