Weekly Wrap - Week ending 29 April, 2022.

XJO Monthly Chart.

March was a good month for the XJO, up +6.39%.   April has settled back a little, down -0.66% for the month.  Despite that fall, the 8-Month EMA and Hull MA13 remain bullish.  That's a good long-term guide for investors.  It's not without qualification, as I show later in the report.

Weekly Chart.

XJO was negative this week, -0.51%, the second down week in a row.  

The long tail on the weekly candle shows strong buying during the week after an early fall.

It remains above the 8-Week EMA. Supertrend (1.5/7) and  Hull Moving Average remain bullish.  

Daily Chart.

This week was a short four-day week due to Anzac Day.  The previous Friday was very weak and that carried over into Tuesday and Wednesday.  Thursday and Friday rebounded but not enough to cancel out the falls on Tuesday and Wednesday.

Indicators are indecisive with Supertrend (1.5/7) turning bullish, but Hull MA13 remains bearish.  Overhead resistance is at 7472 and then major resistance at 7628.  Given events in America on Friday night (SP500 -3.63%) our market will fall at least 1% on Monday.

Using multiple time-frame analysis, Monthly and Weekly XJO remain bullish.  Daily XJO is indecisive and out of sync with the Monthly and Weekly Charts..  Wait for all time frames to get back in sync before re-entering the market.

XJO and SP500 compared.

The chart above shows the performance of the SP500 (America - blue and grey candles) with the XJO (Australia - yellow and blue candles) over the past 100 trading days.

The two indices were more or less in sync from early December to early February.  They then tended to diverge.  There is still a degree of correlation, but we can see that the Australian market is well ahead of the American market.

The Australian and American stock markets are very different beasts.  The Australian market is dominated by miners and financial services, while the American market is dominated by technology stocks.  Technology stocks tend to be heavily leveraged, so they tend to do less well in environment where interest rates are rising.  Hence the divergence in the two particularly in the past month. 

Sector Changes - past week.

This chart shows the performance of each sector (plus Gold Miners, XJO, BEAR and IAF) over the past week.  XJO was down -0.51%.  Five sectors were up and six down.  Unfortunately, among the six down sectors were the two biggest sectors, Financials (XXJ -0.7%) and Materials (XMJ -1.14%).

As a general rule, look for stocks in the best sectors and avoid stocks in the worst sectors.  For example, look to Utilities (XUJ), Industrials (XNJ) and Property (XPJ) for stocks to buy.  Avoid Information Technology (XIJ), Materials (XMJ).  (Exceptions to that general rule could occur.)  XUJ is now very overbought and probably not a serious contender for current buying - look to buy the dip.

Materials

A major driver of the Australian market has been the Materials Index which can be quite volatile as the above chart shows.  On Tuesday, XMJ hit its oblique support level and rebounded.  A break down through that oblique support level could see a serious decline in XMJ affecting the broad market.

New Highs - New Lows Cumulative.

NH-NL Cumulative is in a consolidation phase and has tipped well under its 10-Day Moving Average, that's a caution sign for long-term investors.  It continues to deteriorate and should be taken seriously by long-term investors.  Look to take a defensive stance in the market.

% of Stocks above key moving averages.

1.  % of stocks above 10-Day Moving Average, 57%.

2.  % of stocks above 50-Day Moving Average, 65%.

3.  % of stocks above 200-Day Moving Average, 57%.

All three are above 50% level - which confirms the bullish status of the ASX

Bonds versus Stocks.

At the end of the week, Stocks had an advantage over Bonds, but only just.  This is a chart of relativities, not absolutes.  

The relativity has weakened with the chart now below its 10-Day MA.  At this stage, at the end of the week, stocks have a slight relative advantage over bonds.  But the case for stocks over bonds is weakening.

Offence or Defence?

The above chart compares the performance of XSJ Consumer Staples (yellow and blue candles) with XDJ Consumer Discretionary (blue and grey candles).  

If consumers are confident about the economy, they are usually happy to splurge on big ticket, discretionary items - companies such as Harvey Norman, JB Hi-Fi and car retailers.  If consumers are not so confident about the economy, consumers tend to delay buying big ticket items.  

Consumer Staples are much more resilient to lack of confidence in the economy.  While they may delay purchasing a new refrigerator or Apple computer, consumers will still buy toilet paper and breakfast cereal.  In Australia, big retailers like Woolworths and Coles dominate the Consumer Staples market.

We can see in the above graph, that XDJ and XSJ were more or less in sync until February this year, when XSJ chart began to dominate the XDJ chart.  

That suggests that investors need to take on a more defensive posture than they had last year.

Conclusion.

1.  The monthly, weekly and daily charts are out of sync.  While they remain out of sync, it's best to wait till then are back in sync (all bullish) before committing more money to the market.

2.  XSJ/XDJ suggests a defensive posture in investments.

3.  Negative correlation between the NH-NL Line and the XJO may be predicting further falls in our market.

4.  Price action on the last two days of the week, but a very negative result in the U.S. on Friday night suggests we could see some serious falls coming up in the next few days.

5.  Materials (XMJ) was one of the mainstays in our market for the past few months.  A break lower below its oblique support line could result in major falls in our broad market.

Stay defensive until the market conditions improve.