Weekly Wrap - Week ending 15 July, 2022.
XJO Monthly Chart.
We've had just over two weeks 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). 8-Month EMA is headed down. Hull MA13 is headed down.
All indicators are on the bearish side.
Weekly Chart.
XJO had a negative week, down -1.08%. The chart remains bearish.
The chart may be finding support at the 200-Week MA. It's been oscillating around that mark for four weeks, so it may be a key pivotal point.
RSI14 remains oversold at 35.92.
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 three 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 42.64 - below its mid-line and flat-lining.
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.
The Weekly XJO chart was down -1.06%, but that blurs most of what was happening in the ASX this week. Eight out of eleven sectors had little movement.
Best performers were both defensives, Health (XHJ +3.54%) and Consumer Staples (XSJ +1.24%).
The big drag on the market was Materials (XMJ -6.06%) which accounted for most of the fall in the XJO.
Composite Government Bonds (IAF) were up again +0.35%. Rising bonds (yields lower) are a positive for stocks, but that was more than counter-acted by the fall in XMJ.
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 74.91, and Consumer Staples (XSJ) RSI 65.77.
As a general rule, its best to follow strong stocks in the strongest sectors.
In XHJ, the two strongest stocks are CSL (RSI 77.51) and RMD (RSI 71). XHJ may, however, be a little stretched to the upside. I'd wait for a natural reaction before adding to those stocks.
In (XSJ), the two strongest stocks are EDV (RSI 73.31) and COL (RSI 71.01). WOW was in the list last week and continues to be strong with an RSI at 67.41. EDV and COL both set new 52-Week highs this week. That's usually a good indication of further rises.
Materials (XMJ) is by far the weakest sector with an RSI 31.53. That's a very low figure for a sector and it may be approaching a low.
1. 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 but is close to its 10-Day Moving Average.
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. It gave a timely signal to go long in May 2020, and a sell signal in January 2022. That's a good run for the long-term investor.
If NH-NL Cumulative gives a new buy signal, I'll put that up on my
blog during the week rather than wait for the week-end.
2. ASX Advance-Decline Line.
This is another important indicator of breadth.
The 10-Day MA of ASX Advance-Decline Line has moved moved above the 20-Day MA, which is 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.
3. Strong-Weak Stocks Cumulative.
This chart remains bearish.
XMJ has skewed the S-W Stocks this week to the downside. I had 19 Weak Stocks this week and eight Strong Stocks. But ... 11 of the Weak Stocks came from Mining Stocks. That makes for an unbalanced market. Unbalanced markets usually right themselves. In this case, that means an improvement in the Miners, or, weakness in other sectors. Look for a bounce in Materials (XMJ) for an improvement in the broad market.
% of Stocks above key moving averages.
1. % of stocks above 10-Day Moving Average: Last Week 65%, This Week 47%.
2. % of stocks above 50-Day Moving Average, Last Week 30%, This Week 32%.
3. % of stocks above 200-Day Moving Average, Last Week 22%, This Week 23%
Short-term breadth (Stocks above 10DMA) has dropped this week.
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. SP500 Weekly shows a descending wedge which fairly reliably breaks to the upside. It's best, IMHO, not to pre-empt any change - wait for confirmation.
3. Breadth according to Advances-Declines is improving but we still have to wait on NH-NL Cum to break to the upside.
4. Health and Consumer Staples (both defensives) have strongest momentum. Look to strong stocks in those sectors. XHJ could be over-stretched to the upside. I'd wait for a natural reaction before adding to stocks in that sector.
5. Bonds continued to rally this week (but remain well below the 200-Day MA). That's supportive of a counter rally in stocks.
6. The market is currently unbalanced by a deep movement to the down side in Materials (XMJ). An improvement in XMJ could see a sharp rally in the general market.
Addendum, XMM Chart:
XMM (Miners) is down to a major support level. So it could bounce here for a counter-trend rally.
From Jan. 2022 to June 2022, XMM formed a large Head/n/Shoulders formation. The standard measure rule suggests that XMM has further to fall to the next support level.
Price action is always the best rule to follow. Watch for a rebound at the current level, or further down at the next support level.
