Finspiration Australia

   12/2/23.  Weekend Report - The Week That Was.  Week Ended 10/2/23.

This week has seen a dramatic change in investor sentiment.  The previous week, the market was all gung-ho and seriously overbought.  This week, investors sobered up and a pull-back has started.

XJO Monthly Chart.

We've only had ten days so far in February.  XJO down so far -0.58% stalling at the top of the strong January candle.  XJO has also reached a zone where it has failed in the past.

So far, the Index is above the 10-MMA, Hull MA13, 50-MMA, 200MMA, Supertrend (7/1.5).  Not much damage done yet.

  

Monthly RSI is at 56.57.  50 represents the dividing line between bullish and bearish.

XJO Weekly Chart.

                                            

In the past five days, XJO fallen -1.65%.  

The weekly chart shows a bearish engulfing candle.  That's occurred at a major resistance zone.

Candlesticks are a graphic depiction of buying and selling in the market.  A big dark engulfing candle shows the sellers were in complete control of trading this week.

8-Week EMA, Hull MA13 and Supertrend remain in bullish configurations, so not a lot of damage done yet.

Weekly RSI is at 60.58 - bullish but falling.  

Stochastic was showing a negative divergence and has now turned down below its signal line.

XJO Daily Chart.

XJO was in a strong up-trend in January.  That's all changed now.

Daily RSI is now at 53.71 - that's well below the weekly RSI of 60.58.  A fall by the Daily RSI below the Weekly RSI is indicative of a pull-back.  That's not something to trade from - but a filter to alert you to look at the charts and trade the charts.

Daily RSI remains above the bullish level of 50.

The indicator overlays on the chart (8-DEMA, Hull MA and Supertrend) all indicate the dramatic nature of the reversal that's occurred in the XJO.

STW Daily.

XJO can be a bit deceptive on a chart as it always opens at the same level as the previous day's close.  Never any gaps on an XJO chart.

STW is a tracking ETF for the XJO and can often give clues as to investors' thinking not available from the index.

The above chart shows a big gap opening to the down-side on Friday and breaking below key indicators (8-DEMA, Hull MA and Supertrend).  That's a key sign that a trend reversal has occurred.

Of course, the market always tries to play with the minds of investors.  Looking at the right hand side of the chart, an investor might think that further downside is immediately probable.  But looking at the left hand side of the chart shows a key support at 67.08.  STW closed at 67.07 on Friday - so we might get some upside here before another move to the downside.  

Monthly, Weekly and Daily RSIs. - Sectors + XJO + Gold + Composite Bonds.

This week's chart:

In the week prior to this now, five sectors out of eleven were 70 RSI.  Now there are none, with only one sector above 60 - XXJ - but it is also in pull-back mode.   

Bullish sectors with RSIs arranged in ascending order are:  XDJ, XIJ, XSJ.  In the previous week, eight sectors were bullish.  That's a big change in breadth.

Sectors in pull-back mode (Daily RSI falling below Weekly RSI) XXJ, XMJ, XEJ, XTJ, XHJ, XUJ, XPJ and XNJ.  That's eight out of eleven sectors.

Gold (an industry group within XMJ) is in pull-back mode. 

On the daily time-frame, we've switched from eight out of eleven bullish sectors, to eight out of eleven sectors in pull-back mode.

NewHighs-NewLows Cumulative.

This is a long-term lagging indicator, but a good guide for long-term investors.

NH-NL Cum is represented by the blue line.  It is now marginally above the 10-DAY MA but remains well above the 21 and 34 Day Moving Averages.  The Moving Averages are all aligned in bullish fashion from 10DMA at the top, then 21, then 31.  This provides a buffer against pull-backs.

I've developed another long-term metric "StrongStocks-WeakStocks" which is similar to NH-NL but gives signals a little earlier than NH-NL  SS-WS is up for the 13th week in a row and has moved well above its 5-Week MA.   This week there were only 6 Strong Stocks compared to 34 the previous week.  Weak stocks remained at four.   While this remains above its 5-Week MA, long-term investors can remain calm.

% of Stocks above key moving averages.

1.  % of stocks above 10-Day Moving Average: Last Week 67%, This Week 26%.  

2.  % of stocks above 50-Day Moving Average, Last Week 78%, This Week 61%.  

3.  % of stocks above 200-Day Moving Average, Last Week 76%, This Week 71%.  

All metrics have pulled back, but only the shortest time-frame one is showing bearish tendencies.  At this stage, we are seeing a pull-back and nothing more serious.

Stocks above 200-Day MA have fallen from 76% to 71% but remain above the 5-Week MA.

 

Conclusion.

 

Daily chart of XJO was in a strong uptrend.  That has now reversed to the downside.

STW (ETF for XJO) suggests we could see some consolidation here or some upside in the near term.  

Overall, however, investors' mind-set has now taken a turn for the worse.  Expect more downside before this pull-back is over.

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

Weekly Wrap, Week ended 14 October, 2022.  Is the Bear finished?

XJO Monthly Chart.

This chart is almost identical to the one shown last week.  XJO made a good start to the month, but this is only Week One of October.  Week Two has been flat.  The chart remains in a down trend.

XJO Weekly Chart.

 

This week's candle is a "dragonfly doji" - which means the XJO finished almost where it started after having a big dip down during the week.  XJO finished down just -0.06%, essentially flat.

This week's candle remains marginally above the 8-Week EMA.  One of the two Supertrend lines has switched from blue (bearish) to yellow (bullish).  That suggests the XJO is in non-trending mode.  Hull MA13 remains headed down.  This chart is more bearish than bullish. has run into the resistance of the other Supertrend lines.

XJO has, however, bounced off horizontal support - so it may be headed higher to again test the 50-Week MA as resistance.

XJO Daily Chart.

 XJO was down strongly on Monday, waffled around on Tue-Thur, then surged higher on Friday.  

The Index remains within the confines of the descending broadening wedge shown on the chart.  A break to the upside of that wedge would be bullish, but then it faces the resistance of the 200-Day MA.  As a general rule, it is best not to enter long-term positions while the chart is below the 200-Day MA.

This week saw the XJO test the 50% retracement of the previous rally, and then bounced.  That could be the start of another test of the oblique restraining line of the descending wedge.  A break above that should see the continuation of the counter trend rally

Action on Friday raises the possibility that Tue-Thur is a higher low.  We need to see a higher high to call this a bull rally, i.e., XJO must rise above 4 October.

SP500 Daily.

 This is a fascinating study in chart analysis.  From the high in August, the chart has made lower highs and lower lows - the definition of a down trend.  The lower highs have all occurred after counter-trend rallies up to the descending 20-Day MA.  Each time, the chart has declined to form a lower low.

Momentum is slowing as shown by the MACD Histogram.  It shows a positive divergence from the chart.  This suggests the possibility of a trend change.

Thursday saw one of the biggest reversal days on the SP500 for the past 50 years.  That produced a lot of euphoria - to be dampened by a big down day on Friday.  Volatility like this often occurs at the end of trends as the bulls/bears battle for supremacy.

It will mean down day on the XJO on Monday.

ASX Sector Results for this week.

 Three out of eleven sectors were up this week, two of those (Consumer Staples and Consumer Discretionary) were only up marginally.  XJO finished flat for the week, but it was largely the good performance of Financials (XXJ) which kept the XJO more or less on an even keel.  XXJ up +3.61%.   

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 more reliable guide to recent strength in the sectors. (Click here for a description of RSI.)

 Four sectors out of eleven are above 50:  Financials (XXJ), Materials (XMJ), Energy (XEJ) and Industrials (XNJ).  That's the same as the previous week.  Leadership has now shifted from Energy to Financials.  Energy and Materials were weak this week, but a return to the upside should lead to an improvement in the XJO as a whole.

NewHighs-NewLows Cumulative.

  

This is a metric for the long-term investor.  While NH-NL Cumulative remains below its 10-Day Moving Average, it is best for long term investors to remain cautious and defensive regarding the market.

% of Stocks above key moving averages.

1.  % of stocks above 10-Day Moving Average: Last Week 76%, This Week 54%.  

2.  % of stocks above 50-Day Moving Average, Last Week 26%, This Week 27%.  This remains bearish.

3.  % of stocks above 200-Day Moving Average, Last Week 21%, This Week 29%.  That's an improvement but still bearish.

The long term metric (% Stocks below 200-Day MA) remains very bearish but above its 5-Week MA.  That's promising. I'd like to see this above at least 40% before feeling comfortable.

Conclusion.

 

Overall, our market remains bearish, but we may be seeing a nascent counter-trend rally.

Remember that bear markets tend to reverse quickly.  Just because the market is bearish doesn't mean it can't change to the upside in the blink of an eye.  The stock market tends to be forward thinking - and can reverse when everything looks bleak.  While the Federal Reserve keeps chanting their mantra of higher rates, that is capturing the thinking of many investors.  Irristible forces in the stock market might have other ideas.

I'll leave you with the same thought I gave you last week.

Interestingly, the stock market in 2022 has generally followed the downward path typical for a midterm election year since 1962, according to Dan Clifton at Strategas. The S&P 500 is down slightly more than the typical 19% intra-year decline, but the news improves if stocks stick to the script. Stocks have historically bottomed in October and rallied by an average of almost 32% in the next twelve months. Clifton notes that stocks have been positive in the year after every midterm election since 1942!

Stay Safe.

  

Finspiration Australia. Chart Analysis of Australian and International Stock Markets

  Weekly Wrap - Week ending 13 May, 2022.

XJO Monthly Chart.

After two weeks of May, the monthly chart is in non-trending mode.  8-month EMA is trending down and this week, the XJO finished below the 8-MEMA.  Hull MA13 is trending up.  The Index is below the Supertrend (1.5/7).  Wait till the end of the month for clear long-term signal.

Weekly Chart.

XJO was negative this week, -1.81%, the fourth week down in a row.  

This chart is bearish.  Hull MA13 is blue (bearish); Supertrend (1.5/7) is blue (bearish) and the chart is below the 8-Week EMA which has turned down (bearish).  RSI and CCI are below their mid-lines (bearish) and Stochastic has fallen below its signal line (bearish).

That's a dreary outlook.

The chart shows a trading range in round figures from 7630 to 6930.  This week XJO finished at 7075.  

Daily Chart.

Friday was a serious up day for the XJO +1.93% .  It was a bullish engulfing candle, which coming at the low of a trend, is usually predictive of the end of the down-trend.

Thursday saw the Index at very oversold levels, with RSI below 30.  The Index duly delivered on Friday.

The short-term future of the XJO is looking positive.  XJO finished Friday at 7075.1  For a short-term trade, buy above 7077 with a stop loss at 7056.

Sector Changes - past week.

This chart shows the performance of each sector (plus Gold Miners, XJO, BEAR and IAF) over the past week.  

Health (XHJ +2.59%) sticks out like a sore thumb.  (Pardon the bad pun.). It was the only sector on the plus side.

Ten sectors were down.  Materials (XMJ -3.89%) was the worst.  Not long ago, XMJ was the mainstay of the XJO - not any longer.

XPJ (Property -2.55%) was hard hit again, but nothing like the previous week when it was down. -8.18%.  

Serious falls also occurred in the following sectors:  Information Technology -2.42%, and Industrials -2.22%

New Highs - New Lows Cumulative.

NH-NL Cumulative continues to fall and is now falling steeply under its 10-Day Moving Average, that's a big red danger sign for long-term investors.  

Below is a chart of % NH/NH+NL:

10-DMA of %NH/HN+NL is now the lowest it has been in the past 18 months.  As a contrarian indicator, that suggests we are near a low.

% of Stocks above key moving averages.

1.  % of stocks above 10-Day Moving Average, 20%.

2.  % of stocks above 50-Day Moving Average, 36%.

3.  % of stocks above 200-Day Moving Average, 33%.

All three are below 50% level - which confirms the bearish status of the ASX.

This is the second week in a row where %Stocks above 10-DMA has been 20% or below.

That's another contrarian signal for a short-term bounce.

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 from May 2021 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.

Note, however, the long lower tail on XDJ this past week.  The Index is attracting some buying power - so its fortunes may be change.

Conclusion.

1.  Weekly and daily charts are more or less in sync - bearish.  

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

3.  Contrarian indicators and support levels suggest the Australian market is at or close to a "bounce" level.  That will probably be a case of sell-the-rally. 

4.  Friday's good rebound may be a short-term game changer.  The intrepid can buy for a counter-trend rally.

Tips for the coming week.

Here are three beaten down stocks which, based on double divergences on MACD and MACD Histogram, are ready to make a rebound:  ALL, REH, JHX.  Do your own research on those stocks before buying.  You may have a different view.

ALL:  Buy at or above 33.06.  Stop Loss at 31.64.

REH:  Buy at or above 16.00.  Stop Loss at 15.02.

JHX:  Buy at or above 40.64.  Stop Loss at 39.06

Good Luck for the coming week.