Australian Market Weekly Analysis

  Weekly Wrap, Week ended 10/12/21.  XJO rises from crucial level

XJO Monthly Chart:

XJO peaked in August, 2021.  It has since fallen September-November, but is now resuming its bullish trend in December.  This is important as it is moving up from a crucial long-term level - the 8-Month Exponential Moving Average.  December tends to be a seasonally bullish month for the market, so we may see more upside.

XJO Weekly Chart:

The weekly chart shows a wide trading range which switched the weekly trend from up to sideways.  A break above 7479 should be bullish.  A break below the 50-Week Moving Average (blue, dashed, curving line) would be bearish.

Daily XJO chart:

This week, XJO had a strong week, +1.55%.  That strength was largely generated by action on Tuesday-Wednesday.  Tuesday was up +0.95% and Wednesday was the best day for many weeks when the Index rose +1.25%.  Inevitably, some exhaustion set in with the XJO pulling back on Thursday-Friday.  The XJO now rests on the 50-Day Moving Average.  A bounce off that should be bullish.  That seems likely after the American market showed strength on Friday night (our time). 

One Week Sector Changes:

All sectors were up this week, although Information Technology (XIJ) +0.03% only just made the grade.  

The two strongest sectors were both defensives, Utilities (XUJ) +2.86% and Consumer Staples (XSJ) +3.02%.  That shows, once again, some movement into defensives which we saw a couple of weeks ago.  This seems a bit odd as defensives tend to under-perform during inflationary expectations which most analysts are declaring.  

This may be a short-term aberration.  If inflation is ongoing, we should expect sectors like Materials (XMJ), Energy (XEJ) and Financials (XXJ) to do comparatively better.

NewHighs-NewLows Cumulative.

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

The Cum NH-NL is now sitting just below its 10-Day Moving Average after a small rise this week.  A rise above its 10-Day MA would provide a re-enter signal for long term investors.   A similar indicator but reacting a little quicker than the CUM NH-NL is my CUM S-W chart.  It gave a re-enter signal this week.  

The indecisive nature of these two charts is congruent with the sideways trend noted in the Weekly XJO Chart above.  Sideways trends can produce whip-saws which are frustrating, but part of the nature of stock markets.

Stocks in the ASX100 above the 200-Day MA.

% of stocks in the ASX100 above the 200-Day MA rose this week from 57% to 60%.  That keeps it well above the bearish level of 50%.

Shorter time frames saw some dramatic rises.  For example, % of stocks above the 10-Day MA rose from a bearish 30% to 69%.  That's not so strong as to suggest that the market is overbought, so we should have more upside.

Conclusion: The XJO has been in a sideways trend for about three months.  The past week has shown promising signs of more upside.

We're coming into a seasonally favourable period - the fabled "Santa Rally" may be upon us this week.

It's important, however, to trade what you see not what you think.  Put ideas about "Santa Rally" to one side and watch the charts.  A bounce off the 50-Day MA early next week should be an important sign, but the XJO still has to break out of its sideways trend to prove its bullish credentials.