Weekly Wrap, Week ended 7/1/22. Danger Will Robinson, Danger.
XJO Monthly Chart:
XJO peaked in August, 2021. It fell September-November. December was a bullish month, XJO up +2.6%. The Santa Rally came good as it usually does. December took the XJO above the 8-Month EMA - a key EMA to watch for long-term investors.
It's too early in the month to read anything into the monthly movement except to note that the XJO has found resistance at the August high.
XJO Weekly Chart:
The weekly XJO Chart shows a small rise this week of +0.12%.
This week's range was very wide - the widest in the past year. This week's candle is a "long-legged doji" - representing high volatility and lots of indecision on the part of traders. That's a dangerous situation for medium-term and short-term traders. Great for day traders.
Also important - the chart finished back in the old trading range. So we've had a false break of the top of the trading range. That's another indication of danger.
Daily XJO chart:
The past seven days of trading have been characterised by extreme volatility, with the chart oscillating around a major horizontal support/resistance line (the top of the trading range shown on the weekly chart).
This is a dangerous environment for traders. Wait for this to settle down - see if a clear trend develops with lower volatility
One Week Sector Changes:
This week saw four sectors up and seven sectors down. So breadth was unbalanced. Information Technology (XIJ) was the biggest loser, down -6.15%. Information Technology has become a basket case. In Australia it is one of smaller sectors, unlike America where it is the dominant sector.
Health (XHJ) continues to perform poorly, down -3.35%.
The best two performing sectors were Energy (XEJ) +4.27%% and Materials (XMJ) +2.29%. Those two sectors are the two resource sectors - they tend to benefit from rises in inflation. Utilities (XUJ continues its recent good performance, up this week +2.05%, another sector to benefit from inflation. Financials (XXJ) was up +2.06% - XXJ tends to benefit from rising interest rates - a symptom of inflation.
We have a key theme arising in the above analysis - inflation is with us.
NewHighs-NewLows Cumulative.
For long-term investors, this is one of the most important charts to watch.
The Cum NH-NL is now sitting above its 10-Day Moving Average after a flattening out for a couple of weeks. The chart provides assurance for now for the long-term investor.
The Strong-Weak Stocks Chart dipped a little this week but remains above its Moving Average, providing a confirmation of the Cum NH-NL.
The stats for this week were: Strong Stocks +6, Weak Stocks +8, on balance ST-WS = -2.
Looking at the composition of each, there were four miners in the Strong Stocks (out of six), there was a much more even spread of sectors in the Weak Stocks, two stocks from XDJ, two from XIJ, and one each from XMJ, XSJ, XHJ and XXJ. So the unbalanced nature seen in the Sectors (above) becomes exaggerated in the group of StrongStocks/WeakStocks.
An unbalanced market often leads to the downside.
Conclusion: The XJO has recently experienced extreme volatility without making much progress to the upside or downside . Indecision reigns.
Measures of breadth have shown evidence of unbalancing - often a sign of a down move.
Wait and see if a trend develops, hopefully with less volatility.
The Santa Rally was good for traders, but that is now over.
