Mon. p.m. 31/1/22. XJO finishes down modestly.
The following sectors were positive today: Energy +1.35%, Consumer Discretionary +1.25%, Health +0.83%, Information Technology +3.69%, Communication Services +0.63%, Real Estate +1.35%.
The biggest sectors, however, were both down. Materials -0.45%. Financials -1.83%.
Until those two sectors start to fire, our market will be under stress.
Is this as bad as it gets?
XJO Monthly Chart.
The monthly candle has bounced off major support - so it's possible the selling has ended, but unlikely.
Weekly Chart.
So - XJO is now locked between two major support/resistance areas. The most likely scenario will be for the XJO to test resistance at 7168 and then fall again. XJO is currently at 6988.
Daily Chart.
Friday's action shows a bullish engulfing candle which is a strong short-term signal.
RSI(14) was at 23.6 on Thursday which is extremely over-sold, so a bounce to the upside was not unexpected. Plus, major support had held on Thursday. More short-term upside can be expected.
But serious resistance lies over-head: Supertrend(1.5/7), 10-Day SMA and major horizontal resistance.
It will take a lot of "oomph" to get past those and back into the old trading range. Not impossible - but difficult.
Sector changes this week.
Seven sectors were down more than -2%.
New Highs - New Lows Cumulative.
This is different from events back in Nov/Dec when breaks were marginal and NH-NL Cum went going sideways rather than falling.
This decisive break is another "sell" signal confirm the "sell" signal from the Monthly Chart (above).
Strong-Weak Stocks has also crossed decisively below its moving average signal line, confirming the signal from NH-NL Cum.
Stats for S-W stocks this week were: Strong Stocks 3, Weak Stocks 39. Net S-W = 36.
Because of the nature of the criteria I use to determine Strong and Weak Stocks, it is almost impossible for Weak Stocks to number more than 50, so a number of 39 Weak Stocks is a powerful indicator of just how weak our market has become.
As bad as it gets? Probably, for now.
Bonds versus Stocks.
On a relative basis Bonds are currently trouncing stocks as the above chart shows. That doesn't mean you wouldn't lose money in Bonds - just, you would lose money a lot less slowly in bonds than in stocks.
Another way of looking at it - an increase in allocations to bonds would slow the losses in your overall portfolio.
How bad is it?
A look at the number of stocks in the ASX100 above key moving averages provides an idea of how bad thins are.
ASX100 stocks above 10-Day MA: 6%.
ASX100 stocks above 50-Day MA: 20%.
ASX100 stocks above the 200-Day MA: 32%.
Short-term it couldn't get much worse. But in the long-term it could still get worse, in a Bear Market we would expect ASX100 stocks above the 200-Day MA to fall below 20%. We're not there yet - but maybe we're not in a Bear Market, yet.
Conclusion.
Expect a relief rally in the coming week. But, we are no longer in a "buy-the-dip" scenario. The odds have now switched to a "sell-the-rally" scenario.
Take care, and safe trading.
Apple reported after the U.S. market closed early Friday morning (Oz time), which produced a rise in U.S. Futures. The Australian market, when it opened on Friday, drew encouragement from the U.S. Futures and finished well up at the close on Friday, XJO +2.19%. Apple (+6.98%) and Visa (+10.6%) both rose strongly in Friday trading in the U.S. which lead to big jumps in the major U.S. indices, Dow Jones +1.65%, Nasdaq +3.13%.
Bonds in the U.S. were also supportive of stocks with the yield on 10-Year Treasuries falling -1.68% (prices for 10YT rising),
Yesterday in Australia.
XJO is still a long way below the 200-Day MA and we can see a major resistance level at 7189. XJO finished Friday at 6988. Then we have the massive old trading range which will also provide resistance.
We'll have to wait and see how this bounce goes - and be ready to sell into any advance.
Overnight.
SP500.
Friday's action in the U.S. erased the past three days' losses in the SP500. That takes the Index back up to resistance of the 200-Day MA and the Tenkan Sen (mid-point of the past nine days). If that can be overcome, triple resistance lies ahead: major horizontal resistance, Kijun Sen (mid-point of the past 26 days) and the lower edge of the Ichimoku Cloud. Tough stuff.
Commodities.
Fear and Greed.
Despite the correction that has occurred in the SP500 (i.e., more than -10%), the Fear and Greed Index hasn't fallen into the Extreme Fear quadrant which usually precedes substantial rises in the major U.S. indices. We might have to see Extreme Fear before we can presume we've seen "the" bottom in this market.
Overnight:
Indices were well up early in the day, faded in the middle session, and stayed low in the afternoon.
SP500.
RSI(14) remains extremely ovcr-sold with a reading of 24.3. CCI is show a porisitve divergence from price, so a move to the upside seems likely. Any significant bounce will probably be sold into.
Commodities.
Iron Ore +0.5%.
XJO surged at the opening but has now fallen back a little to be up +0.7% after 30 minutes of trading.
Apple Inc. reported good results after the U.S. market closed and Dow Futures are up 200 points, so that probably explains the positive opening in Australia this morning. After 40 minutes of trading, XJO is up only +0.2%. This is looking like a repeat of yesterday.
XJO finished down today -1.77% after being up more than +0.9% after the opening. (What were they thinking of?). A rally in the afternoon carved more than 1% of the losses at 1.15 p.m. but that did little to save the XJO from a massive loss today.
Advances/Declines were nowhere near as bad as they have been in the past four days. A/D ratio today was 0.31% - a lot better than Tuesday's ratio of 0.13%, but a long way from the mid-09nt of 0.5.
Today saw extremes which haven't been seen for a long time. NewHighs-NewLows came in at -115, We haven't seen triple negative figures for NH-NL since the bear market of 2020.
Rate of Change Difference between Bonds and Stocks is also at levels we haven't seen since the bear market of 2020.
This graph compares the rate of change of stocks compared to bonds. Bonds are clearly out-distancing stocks in Rate of Change. That's not a lot of solace as Bonds are also in a down-trend - just nowhere near as severe as stocks.
All of this suggests we're getting close to a low. But until we see definite signs of a low - it's best to leave the bottom pickers to try to catch falling knives.
So far, the XJO is down more than -11% since its high on 5 January to the low of today. That's "officially" in correction.
Overnight.
European stocks finished higher last night, STOXX600 +1.68%. Europe closed before the Federal Reserve's announcement. American stocks were also positive at that time, but fell after the Fed's announcement.
Dow Jones -0.38%. SP500 -0.15%. Nasdaq +0.02%. Small Caps -1.47%. Banks +0.28%.
SP500.
Commodities.
Iron Ore +0.2%.
After 15 minutes of trading this morning, XJO is up +0.8%, defying the down trend in late trading in the U.S.
Overnight.
SP500.
The SP500 is extremely oversold with RSI(14) at 25.8.
All of this points to the probability of a move to the upside. Tuesday's action suggests that major participants are anticipating a move to the upside - no matter which way the Federal Reserve decides to go.
Commodities.
All four charts show a bull flag with a break to the upside last night. That's a positive for the Australian market.
Australia is closed for a public holiday today. We'll have to wait till tomorrow to take action on the decision of the Federal Reserve.
Mixed Results in New York. Energy up. NAB ex-dividend today. Dow Jones +0.16%. SP500 -0.08%. Nasdaq -0.11%. Small Caps -0.07%. Banks -0...
