Finspiration Australia. Chart Analysis for Australian and International Stock Markets.

      18/12/22.  Sunday Report - The Week That Was.  Week Ended 16/12/22.

Anybody hear sleigh bells?

Many misconceptions surround the notion of a "Santa Rally".  Those misconceptions probably arose as a result of December being the best performing month in the Calendar Year.  Since 1926, December has been positive about 78% of the time.  That's a significant number.

But, the notion of a Santa Rally doesn't refer to the month of December, it refers to a rally which occurs in the latter part of December.

The following is from Wikipedia:

A Santa Claus rally is a calendar effect that involves a rise in stock prices during the last 5 trading days in December and the first 2 trading days in the following January.,^[1][2] According to the 2019 Stock Trader's Almanac, the stock market has risen 1.3% on average during the 7 trading days in question since both 1950 and 1969.^[2][3] Over the 7 trading days in question, stock prices have historically risen 76% of the time, which is far more than the average performance over a 7-day period.

However, in the weeks prior to Christmas, stock prices have not gone up more than at other times of the year.^[4]

According to theory, the Santa Rally should begin on 22 December - NY Time.

ASX was down again this week, after being thumped the previous week.  This week, XMJ (Materials) was hit by the bears, while XXJ (Financials) and XEJ (Energy) were supported by the bulls.

XJO Monthly Chart.

The month of December has started poorly for the XJO, down so far -1.86%.  

The down-trend in the Monthly Chart may have been reversed.

The Hull MA13 and the 8-Month EMA Have both turned up.  That's significant.  Remember that Hull MA13 was the first indicator to turn bearish back in October 2021.  

The chart in December is knocking on resistance of the Supertrend (7/1.5).  That is causing the Index some problems.  

XJO Weekly Chart.

                                            

In the past five days, XJO has fallen -0.9%.  That's the second down week in a row.

Despite this week's fall, the chart remains in a bullish up-trend and above all key moving averages.

Hull MA13 and the Supertrend Line are bullish.  The index has formed a double bottom.  Using a standard measure rule, that suggests the XJO will make a new all time high.

The Index is now well above the 50-Week MA which is a bullish signal.  

The Index is currently at support of the 8-Week EMA and horizontal support.

XJO Daily Chart.

The short-term down-trend in the XJO seems to be forming an ABC pull-back.

Near term support lies with horizontal support at 7100 and just below that is the 50-Day MA.  A bounce at those levels is highly likely.

A break of the Stochastic RSI (a fast moving indicator) above its mid-line would be a short-term "buy" signal

SP500 Weekly Chart

Looking at this chart, it is no wonder that plenty of U.S. pundits are saying that the Santa Rally has been cancelled this year.  (e.g. CNN,  Financial Express). 

SP500 is in a long-term down-trend.  The medium-term trend has failed at the 50-Week MA and has currently turned down for the past two weeks. 8-Week EMA and Hull MA13 have all turned up.  Those are bullish events.

SP500 has been rejected  at the median line of the Andrew's Pitchfork and the 50-Week MA.  That both turned down - that's bearish.   

Just remember that the Santa Rally is a short-term seasonal event, which could occur without changing the current status of the long-term and medium-term SP500.

ASX Sector Results for this week.

Despite this week's loss on the XJO of -0.9%, more than half the Sectors (six out of eleven) were up.  Best of those was Energy +3.59%.  XEJ has been a bit of a dog lately but might have turned the corner.

XMJ (Materials) did the most damage, down -3.98%.  As it is the second largest sector in the ASX, its big fall did a lot of damage.  

Relative Strength of Sectors.

RSI (Relative Strength Index) is calculated using the default setting of 14 days - almost three weeks of trading.  It provides a more reliable guide to changes in sectors than the one-week results which can jerk around quite a lot and, thus, RSI is probably a better guide to recent strength in the sectors. (Click here for a description of RSI.)

Six out of eleven sectors have now fallen below the 50 RSI level.  The worst is Discretionary with an RSI of 39.26.  That makes it oversold, so it could rebound in the near future.  XNJ (Industrials)  looking weak strong with an RSI of 55.35.  It might be worth checking out some of the stronger XNJ stocks.

XJO below 40.  That's into bearish territory.

NewHighs-NewLows Cumulative.

  

Early this month, NH-NL Cum briefly rose above the 10-Day MA but now continues to fall below its 10-Day MA.  There's not much of a gap - so it could easily turn bullish. 

This is a lagging indicator but bullish signals are usually highly reliable.  

This is a metric for the long-term investor. I'd like to see the 10-DMA above the 20-DMA to be confident of a long-term bull signal.  There's not much in it, at the moment, so it wouldn't take much bullish action to switch this into a bullish signa.

I've developed another metric StrongStocks-WeakStocks which is similar to NH-NL but gives signals a little earlier than NH-NL.

SS-WS is up for the sixth week in a row and has moved well above its 5-Week MA.   This week there were 10 Strong Stocks and 3 Weak Stocks.  No particular sector dominated in the Strong Stocks.  There were three strong stocks in each of Financials and Industrials.

% of Stocks above key moving averages.

1.  % of stocks above 10-Day Moving Average: Last Week 33%, This Week 32%.  

2.  % of stocks above 50-Day Moving Average, Last Week 68%, This Week 68%.  

3.  % of stocks above 200-Day Moving Average, Last Week 55%, This Week 50%.  

Both the medium-term (%stocks above 50DMA) and long-term (%stocks above 200DMA) measures remain bullish.  The short-term measure (%stocks above 10DMA) is bearish but no significant change from the previous week. 

% of stocks above the 200-Day MA fell this this week and below its 5-Day MA, but remains at the bullish reading of 50%.

Conclusion.

 

ASX had a poor week this week.  Daily and Weekly Charts are out of sync, Daily is bearish while Weekly is bullish.  We need to see the Daily return to bullish conditions if we are to see a strong Santa Rally.

Plenty of conflicting data appear this week.  So, despite the poor net overall result, breadth remains on the cusp.

Stay Safe.