Weekly Wrap, Week ended 1/12/21.  XJO at crucial level.

XJO Monthly Chart:

The monthly chart remains in a long-term up trend.  If it breaks below the 8-Month EMA (grey-blue line), that would be a sell signal for long-term investors.

XJO Weekly Chart:

PRT Bands remain bullish (yellow), but other indications are negative.  Supertrend (1.5/7) is bearish and the Schaff Trend Cycle is bearish.  

The short-term line is close to crossing below the medium-term line.  A negative cross-over would throw the banks into bearish territory.

Daily XJO chart:

This week, XJO broke below its trading range and the short-term trend is down.

The chart is consolidating at the 200-Day Moving Average - a key level for traders and investors.  A break below that would be bearish for the market.

Intra-day buying has been coming into the market in recent days - that's shown by the long lower wicks on daily candles, so this may be ready to move back to the upside.

A short-term positive divergence on the CCI also suggests a move to the upside.  That's often a good leading indicator, but not infallible.

One Week Sector Changes:

Only three sectors were up this week.  But, importantly, two of those were the biggest sectors.  Materials (XMJ) +1.26% and Financials (XXJ) +0.59%.  Health -3.23%, Consumer Staples -2.82% and Information Technology -2.5%.  Interestingly, two of those were Defensives, so we seem to be seeing a switch out of Defensives and into Risk-On stocks.  That's a positive development. 

(Later in this report I'll show charts for BHP and CBA the biggest stocks in Materials and Financials). 

NewHighs-NewLows Cumulative.

For long-term investors, this is one of the most important charts to watch.

The Cum NH-NL has now closed below its 10-Day Moving Average for the first time since May, 2020.  This chart has kept the long-term investors in the market for 18 months, but is now flashing a sell signal.

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Stocks in the ASX100 above the 200-Day MA.

% of ASX100 stocks above the 200-Day MA was at 57% this week.  That's down one on the previous week.  It remains above the 50% mark, so it remains bullish although clearly falling.  

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 ranging from long-term to short-term.  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 negative result in the SS v WS 5 SS and 11 WS.  This is used by me to calculate a cumulative SS-WS chart.  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 5-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.  It once again shows a negative development.

BHP Chart.

The PRT Bands are on the verge of switching from blue to yellow.

BHP has been under accumulation for nearly two months, it has broken out above resistance set up in mid-September and is well above the 50-Day Moving Average.

This may be a counter-trend rally, but given the long accumulation phase, BHP is likely to head much higher in the medium term.

CBA.

CBA was in a steep down-trend for most of November, in concert with the other big four banks.

That seems to have come to a stop on Thursday when CBA rose +2.15%.  That rise was well anticipated by a positive divergence on the CCI.  On Friday, Supertrend (1.5/7) switched from bearish to bullish.

This may only be a counter-trend rally, but we are coming into a seasonally favourable time for stocks, so CBA might have plenty of legs left in this run-up.

Conclusion: Fear continues to plague our market this week with Omicron taking central stage. 

The XJO charts show the Index at a critical stage on monthly, weekly and daily time frames.  Some of my favourite longer term indicators (Cum NH-NL and Cum SS-WS) have given sell signals.  They have been good guides in the past, particularly before the 2020 bear market.

We are, however, get signs that the "smart money might be getting into this market" with intra-day buying showing up this week, and a switch out of defensives into risk-on sectors.

I'll reiterate the four choices longer-term investors have:

1. Go to cash and hope to pick the bottom and then re-enter the market.  That's always a difficult trick to pull off.
2. Adopt a defensive posture by altering allocations between bonds and stocks if you have a diversified portfolio.  
3. Hedge your portfolio by buying Bear,  the ETF which reacts inversely to the XJO resulting in a neutral position.
4. Hang on for grim death and hope this all just blows away very quickly

Financial advisers will usually opt for No.4.  (You may be able to come up with more options.). It's up to you and your level of tolerance for risk.  Option 4 looks a likely position at this stage, but if the 200-Day Moving Average is decisively broken, one of the other three options might be deployed.