Weekly Wrap - Week ending 22 April, 2022.
XJO Monthly Chart.
March was a good month for the XJO, up +6.39%. April is in a consolidation period, after three weeks it is down just -0.35%. 8-Month EMA and Hull MA13 have both turned bullish. It's getting close to the end of the month of April, we're waiting to see if this bullish bias can hold for the rest of the month. At this stage, it is looking promising.
XJO was negative this week, -0.67%, reversing the previous week's positive move.
It remains above the 8-Week EMA. Supertrend (1.5/7) and Hull Moving Average remain bullish.
The week's action was, however, bearish. XJO hit resistance from the Aug., 2021 and Jan. 2022 highs and reversed sharply. From the weekly high to the weekly close, that was a fall of about -2%. That's significant.
Daily Chart.
We can see from the daily chart that the damage was done by Friday's action. Friday took the XJO back below the 8-Day EMA and resulted in a bearish change to the Supertrend (1.5/7)
Using multiple time-frame analysis, Monthly and Weekly XJO remain bullish. Daily XJO is now out of sync with the other two time frames. Monthly and Weekly both remain above their 8-period EMAs. Wait for all time frames to get back in sync before re-entering the market.
Relative Strength of Sectors - past 52 days.
This chart compares the performance of each sector against the performance of the XJO over the past 52-days. Sectors above zero have outperformed the XJO over the past 52 days. Sectors below zero have underperformed XJO over the past 52 days. Six Sectors were up this week and three down.
As a general rule, look for stocks in the best sectors and avoid stocks in the worst sectors. For example, look to Utilities (XUJ), Energy (XEJ) and Consumer Staples (XSJ) for stocks to buy. Avoid Consumer Discretionary (XDJ), Materials (XMJ) Information Technology (XIJ), Telecoms (XTJ) and Property (XPJ). (Exceptions to that general rule could occur.) XUJ is now very overbought and probably not a serious contender for current buying - look to buy the dip.
A big change has occurred in the past week with Materials (XMJ) moving from a most preferred group to a least preferred group.
Materials
Friday's action resulted in a break-down of market structure with XMJ finishing well below a major support/resistance level. It is now down to the 50-Day MA, but given events in America on Friday night, that seems unlikely to hold.
New Highs - New Lows Cumulative.
NH-NL Cumulative is in a consolidation phase and has just tipped under its 10-Day Moving Average, that's a caution sign for long-term investors. Further deterioration should be taken seriously.
For the past month, NH-NL Line has been in consolidation. Previously it had fallen strongly from the January, 2022 high. That means we have a negative correlation between NH-NL Line and the XJO which this week once again tested the January high. That suggests that the internal strength of the market has been weakening - usually an indication that the market itself, although at a new multi-week high this week, will weaken further.
% of Stocks above key moving averages.
1. % of stocks above 10-Day Moving Average, 56%.
2. % of stocks above 50-Day Moving Average, 67%.
3. % of stocks above 200-Day Moving Average, 54%.
All three are above 50% level - which confirms the bullish status of the ASX
Bonds versus Stocks.
At the end of the week, Stocks had an advantage over Bonds.
The relativity has weakened with the chart now above its 10-Day MA. That's not necessarily a bearish signal - it's just that bonds are doing a little better relatively in the past few days than they have in recent times. Stocks are still the preferred option while the chart remains above zero.
Strong Stocks versus Weak Stocks.
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 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.
Conclusion.
1. The monthly, weekly and daily charts are out of sync. While they remain out of sync, it's best to wait till then are back in sync (all bullish) before committing more money to the market.
2. XSJ/XDJ suggests a defensive posture in investments.
3. Negative correlation between the NH-NL Line and the XJO may be predicting further falls in our market.
4. Price action on Friday was bearish.
5. Materials (XMJ) was one of the mainstays in our market for the past few months. Break down in market structure of XMJ suggests that prop has been kicked away from under the ASX.
