Weekly Wrap - Week ending 5 August, 2022.
XJO Monthly Chart.
We are only into the first week of August, so too early to make definitive statements about the trend.
Both Supertrend Lines remain blue (bearish). 8-Month EMA is headed down. Hull MA13 is headed down.
All indicators are on the bearish side.
The XJO is finding support at the 50-Month EMA where it also found support back at the end of 2018.
Weekly Chart.
XJO had a good week, up +1.01 %. The chart is bullish.
The index has found support at the 200-Week MA and finished above its 8-Week EMA which is pointing up. HullMA13 has turned up.
Both Supertrend lines have switched from blue to yellow - bullish.
All of that is bullish.
Monthly and Weekly Charts are out of sync (Monthly - bearish, Weekly bullish) so we are seeing a trend change in the medium term.
Daily Chart.
XJO has finished marginally above resistance at 6982, but the upside break lacks conviction
Hull MA13, two Supertrend lines and 8-Day EMA are all heading to the upside - bullish.
The short-term trend is bullish but nudging on an overbought reading on the RSI.
Cautionary notes are entering this chart with negative divergences showing up on CCI and MACD Histogram.
The Weekly and Daily charts are both bullish but out of sync with the Monthly Chart. The most likely scenario is more upside, but there are provisos to keep in mind about that statement. More on that later in this report.
SP500 is bullish in both the Short-term and Medium-Term. While it remains below the 200-Day MA the Long-term remains in doubt.
Like the XJO, this chart is giving out cautionary signals.
SP500 is at the 50% resistance line of the fall from March to June. That also corresponds with the top of the congestion zone which occurred in June.
Negative divergences are showing up on CCI and MACD Histogram, so the current up-trend is under threat from falling momentum.
Sector Strengths by RSI.
RSI (Relative Strength Index) is calculated using the default setting of 14 days - almost three weeks of trading. It provides a more reliable guide to changes in sectors than the one-week results which can jerk around quite a lot and, thus, RSI is probably a more reliable guide to recent strength in the sectors. (Click
here for a description of RSI.)
Ten sectors have readings above 50 - which is taken as a sign of bullishness. Eight sectors have readings above 60 up from three the previous week. That's looking a little overcooked to me.
The sector with the strongest momentum is, Financials (XXJ) RSI 69.29, down a little from the previous week when it was above 70 (overbought). Next best was Health (XHJ) RSI 68.
As a general rule, its best to follow strong stocks in the strongest sectors.
In XXJ, the two strongest large cap stocks are NAB (RSI 71.1) and AMP (RSI 77.65). Both of those stocks are now overbought.
In (XHJ), the two strongest large cap stocks are RMD (RSI 68.02) and Ansel(RSI 67.53 ).
Do your own research on those stocks. I've only put up those stocks as examples of a general principle and not a recommendation.
There are other ways of looking at this. For example, the biggest improver in XHJ was Ramsay Health Care (RHC) where the RSI jumped from 40.86 last week to 66.48 this week. The biggest improver in XXJ was QBE, RSI jumped from 43.65 to 56.37 in one week.
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 is in lock-step with its 10-Day Moving Average. Until we see a clear move above the 10-Day MA - continue to watch.
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 ASX Advance-Decline Line turned bullish at the beginning of July, predicting the good month we've seen for stocks in July. At this stage it remains bullish. Watch for a turn-down to predict a bearish reversal.
3. Strong-Weak Stocks Cumulative.
This chart has turned bullish being above its 5-Week MA.
The Number for SS-WS has now reached 19. The last two times we saw a number like this (late Apr, 2020 and late Dec. 2021) the market retreated from recent highs.
% of Stocks above key moving averages.
1. % of stocks above 10-Day Moving Average: Last Week 78%, This Week 80%.
2. % of stocks above 50-Day Moving Average, Last Week 70%, This Week 75%.
3. % of stocks above 200-Day Moving Average, Last Week 31%, This Week 43%
These figures suggest that the market is bullish in the short and medium term, but the long-term trend is still in doubt. That confirms the long/medium/short term experience on the Monthly/Weekly/Daily XJO charts.
The % of stocks above 10-DMA is, however, now into the overbought level of 80, so we can expect a short-term pull-back.
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, one bearish, two bullish. Stay with the short/medium term trends until other-wise indicated.
2. SP500 Daily has been bullish in the short/medium term, but is at a key resistance level. XJO is in a similar situation.Watch.
3. Breadth according to Advances-Declines is improving but we still have to wait on NH-NL Cum to break to the upside.
4. XXJ and XHJ have strongest momentum. Look to strong stocks in those sectors. Do your own research on stocks in those Sectors.
5. In the short-term, the market is looking over-cooked. I expect a pullback in the coming week.
In America, reporting season continues. Results, which so far have been generally favourable, will continue to sway the market.
