Finsipiration Australia. Weekly Wrap, week ended 11/2/

   XJO has strengthened in the short-term.  Bearish conditions remain.

XJO Monthly Chart.

In January, the monthly chart showed a sell signal for both the Supertrend (1.5/7) and the 8-Month EMA.

After two weeks of February, the February XJO candle has risen above the 8-Month EMA but not above the Supertrend.  

If it can hold above the 8-MEMA, the XJO could be OK.  But we have two weeks left in the month.  Wait.

Weekly Chart.

XJO up this week +1.37%.  That takes it above the old resistance level.  It remains below both the 8-Week MA and Supertrend (1.5/7).  XJO is now back into its old long-term trading range - lots of sideways action can be expected if that happens.

A fall back below the old resistance level would be bearish.

Daily Chart.

On Friday, XJO failed at the 50 and 200 Day MAs which lie in close proximity.  50 below the 200 which produced a "death cross".  Failure at such important MAs is bearish.  Given event in the American market on Friday night (SP500 -1.9%) we can expect a flow-on to Australia on Monday.  That puts the current counter-trend rally under serious threat, and XJO is likely to fall back below major support.

Sector changes this week.

Four sectors were up this week, six down and one flat.  Despite the good overall performance of the XJO we have an unbalanced market.  The good result was largely due to good performances in Financials (XXJ +4.01%) and Materials (XMJ +3.29%).  Those are the two biggest sectors in the market making up together around 40% of the Australian market.  If those two perform well, we can expect the market generally to do well.  But the unbalanced nature of the sectors means that it only takes a bit of a knock to those two sectors to make the market have a hissy fit.

The good performance by the XXJ was due largely to re-ratings in the four big banks.  This week - ANZ +2.69%, CBA +4.73%, NAB +6.92%, Westpac +5.86%.

Health (XHJ -3.09%) and Consumer Staples (XSJ -2.33%) were the two weakest sectors.  They are both defensive sectors.  If the market continues to fall we might see a relative improvement in those two sectors.

New Highs - New Lows Cumulative.

NH-NL Cumulative jumped up this week to be level with its 10-Day Moving Average.  Further improvement would provide a long-term buy signal.  Given events in New York on Friday, that seems unlikely in the near-term.

A bearish reading on the Strong-Weak Stocks Chart remains.  I'd like to see these two charts in sync before giving a buy signal.

Bonds versus Stocks.

The Stocks/Bonds Ratio chart reached up to the zero line this week, but dropped again on Friday. We need to see this ratio above zero to prefer stocks over bonds.  

This doesn't necessarily mean an either/or situation.  But does help in deciding allocations between stocks and bonds for long-term diversified investors.

Stocks above key moving averages - last week and this week

A look at the number of stocks in the ASX100 above key moving averages provides an idea of how bad thins are.

ASX100 stocks above 10-Day MA:  Last week 69%%.  This week 49%.

ASX100 stocks above 50-Day MA: Last week 33%.  This week 36%.

ASX100 stocks above the 200-Day MA: Last week 40%.  This week 40%.

Until we get all figures above the 50% mark, we'll assume that we are looking at a counter-trend rally

Conclusion.

This week tested my resolve that the current rally was a counter-trend rally.  That resolve was confirmed on Friday when the XJO fell back from the 50 and 200 Day Moving Averages and back below the "death cross".

Friday's big fall in the U.S. suggests we'll see more downside in the near term.  I continue to think that we were in a counter-trend rally which has now failed.

Be prepared to take defensive action