25/6/23. Weekly Finspiration Report.

  

That's been the story of the past two weeks.  XJO had a stunning rally to break upwards from its down-trend channel - only to fall back down an even more spectacular manner.  Crazy stuff.

XJO Daily Chart.

XJO down this week,  -2.1% after being up +1.81% the previous week.  The Index has broken out of its down-trend channel.

XJO is now back inside the down-trend channel and at horizontal support.  

American SP500.

This is what I said last week:  SP500 is in a strong up trend beginning in mid-March.  It is now at the top edge of the Standard Error Channel.  Expect a pull-back.

And on cue, the SP500 pulled back.  It is now close to three important supports:  the lower edge of the SEC, horizontal support, and the 200Day MA.  Those three in close proximity provide a powerful argument for a move back to the upside in the coming week.  That should save Australian stocks from further catastrophic falls.

Sector Performance this past week.

The only sectors up this week were the three Defensives, Utilities +1.47%, Staples _2.07%, Health +0.29%.  The rest of the market was dire.  Energy was poor, -4.85% followed by Info.Tech. -4.29% and Materials -3.79%.  Financials performed relatively well compared to resources, down -1.32%.  

Momentum.

A quick way to judge momentum is to compare the Weekly RSI and the Daily RSI.

By this method, XUJ, XSJ and XXJ have positive momentum.  

XXJ looks like a poisoned chalice.  Care needs to be taken in judging the relative merits of stocks in the Financial Sector.  Banks are still performing poorly, while Insurance stocks are doing well.  QBE was up this week, +0.79%, but suffered selling in the latter part of the week.  Medibank Private up +0.84%.  IAG up 2.54%.  Compare that to the banks.  ANZ -1.98%.  Westpac -0.77%.  NAB -0.27%.  CBA -0.85%.

I wouldn't rule XIJ out at this stage, even though momentum is negative.  XIJ did very strongly this week and may be returning to further strength.  But, the chart is saying to stick with Energy, Materials and Financials.

If looking for an alternative investment, Bitcoin seems to be back in bullish mode this week, up 16.52%.

I still like the Info.Tech. sector - but it is for trading not buy-and-hold.  None of the large caps in XIJ look appealing at the moment, but they'll come good again.  Traders can do well in stocks like WTC, XRO, TNE, NXT.

Mean Reversion.

The stock market tends to be mean reverting:  after a big rise, or a big fall, the market tends to revert to a longer term mean.

One set of data I keep which is something of a guide to when mean reversion will occur, it the difference between Implied Volatility and Historical Volatility.  Implied volatility is forward looking and historical volatility is backward looking.  Here's my chart for IV-HV:

IV-HV is now almost back to the level last seen in late March.  That was when a big fall in the XJO ended and reverted to the top side.  The XJO could fall a little more before IV-HV hits the same level as in late March, but its not far off.

Conclusion.

It's been a crazy week in the Ozzie market this week.  But the volatility might be coming to an end.  

Anything can happen in the stock market, as we've seen in the past two weeks with big jumps to the upside and the downside. 

A lot of factors are lining up, however, to suggest we'll see another move to the upside in the near future.

July is often a strong month in the stock market.  So be ready to pull the trigger.