Weekly Wrap - Week ending 8 July, 2022.
XJO Monthly Chart.
We've had just over one week so far in July, so it would be premature to draw any conclusions from the chart except to say that the chart remains bearish.
Both Supertrend Lines remain blue (bearish). All indicators are on the bearish side.
Weekly Chart.
XJO had a positive week, up +2.11%. The chart, however remains bearish.
The rise this week took the Index back above its 200-Week MA.
RSI14 remains oversold at 37.55 - but improving.
Two Supertrend lines, 8-Week MA and Hull MA13 are all bearish.
Monthly and Weekly Charts are in sync - bearish.
Daily Chart.
XJO is in a short-term sideways consolidation where it's been for two weeks. It lies short-term between support and resistance, 6540 and 6764.
One Supertrend Line is blue and the other is yellow indicating a non-trending market. Hull MA13 and 8-Day EMA are both sideways. Stochastic has had a bullish kick to the upside.
RSI (14) is at 45.73 - below its mid-line but rising.
The short-term trend is inconclusive.
The medium and long-term trend remains bearish.
SP500 Weekly shows a falling wedge. With positive divergences showing on RSI and Stochastic that provides us with the possibility of a sustained move to the upside. July is often bullish. Wait and see a break to the upside of the falling wedge.
Sector Changes - past week.
Only two sectors down this week, nine sectors up. Materials (XMJ) was worst hit, down -0.83%. Industrials (XNJ) down just a little, -0.08%.
Best performers were both cyclicals, Information Technology (XIJ) +6.86% and Consumer Discretionary (XDJ) +5.62%. As a general rule, its best to follow the strongest stocks in the strongest sectors. Strongest stocks in XIJ were
Composite Government Bonds (IAF) were up again +0.36%. Rising bonds (yields lower) are a positive for stocks
Sector Strengths by RSI.
RSI (Relative Strength Index) provides a quick way to compare momentum of sectors. (Click
here for a description of RSI.)
The sectors with the strongest momentum are both Defensives, Health (XHJ) RSI 65.78, and Consumer Staples (XSJ) RSI 63.44.
As a general rule, its best to follow strong stocks in the strongest sectors.
In XHJ, the two strongest stocks are CSL and RMD. In (XSJ), the two strongest stocks are EDV and WOW. COL is almost as strong as WOW.
New Highs - New Lows Cumulative.
This is one of the important breadth indicators. Unless breadth is solidly positive, the market is always under threat.
NH-NL Cumulative continues to fall and is well under its 10-Day Moving Average, that's a big red danger sign for long-term investors.
This metric trends very strongly. As such it is a valuable guide to the long-term investor, but not much use to the short-term trader.
There may be a change in trend coming in NH-NL Cum. The number of New Lows has decreased markedly in the past week. If we get an increase in New Highs we could see a change in NH-NL Cum.
The relative change in NH compared to NL is reflected in the following chart %NH/NH+NL:
The sharp upward movement in the chart is easily seen. It needs to get above 50 to change the momentum of NH-NL Cum from down to up.
ASX Advance-Decline Line.
This is another important indicator of breadth.
ASX Advance-Decline Line has moved from down to up, i.e., bullish.
A-D Line tends to react a little faster than NH-NL Cum, so it can be a leading indicator. This may be a harbinger of a strong counter-trend rally.
% of Stocks above key moving averages.
1. % of stocks above 10-Day Moving Average: Last Week 47%, This Week 65%.
2. % of stocks above 50-Day Moving Average, Last Week 20%, This Week 30%.
3. % of stocks above 200-Day Moving Average, Last Week 21%, This Week 22%
Short-term breadth (Stocks above 10DMA) has improved considerably over three weeks ago when it stood at 5%.
The other two longer-term metrics remain in bearish territory - but improving.
I'd like to see all of these above 50% to feel comfortable about the longer term bull market.
Conclusion.
1. Monthly, Weekly and Daily Charts are not in sync, two bearish and one consolidating. This could be the start of a strong counter-trend rally
2. Breadth is improving but not enough to turn sentiment to the bullish side.
3. Health and Consumer Staples (both defensives) have strongest momentum. Look to strong stocks in those sectors.
4. Bonds continued to rally this week - but remain well below the 200-Day MA. That's supportive of a rally in stocks.
5. SP500 technically shows signs of a possible rally. July is often a bullish month. Watch for a break above the descending wedge.
6. Advance-Declines has switched from down to up. That's often a leading indicator for a rally.
