Weekly Wrap - Week ending 12 August, 2022.
XJO Monthly Chart.
We are now into the second week of August, so too early to make definitive statements about a change in 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 has found support at the 50-Month EMA where it also found support back at the end of 2018. This could be the start of a rebound, but with the seasonally weak months of September and October looming, any rebound is likely to be cut short.
Weekly Chart.
XJO was up this week, +0.24%. The chart is bullish but, after four weeks to the upside, momentum is slowing.
The index has found support at the 200-Week MA and finished above its 10-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.
Hull MA13, two Supertrend lines and 8-Day EMA are all heading to the upside - bullish.
The short-term trend is bullish but.
Cautionary notes are entering this chart with negative divergences showing up on CCI and MACD Histogram.
The chart is approaching the 200-Day MA - that's considered a line between a bullish and bearish market. It may provide stiff resistance to further upside.
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.
Negative divergences are showing up on CCI and MACD Histogram, so the current up-trend is under threat from falling momentum.
RSI is at 71.67, overbought. As SP500 is approaching the 200-Day MA with an overbought reading, it will find difficulty in breaking above the 200-Day MA.
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.)
Eleven sectors have readings above 50 - which is taken as a sign of bullishness. Overall, however, RSIs have weakened. Only three sectors have readings above 60 down from six the previous week. Momentum is slowing
The sector with the strongest momentum is, Financials (XXJ) RSI 67.24, down a little from the two weeks ago when it was above 70 (overbought). Next best was Telecoms (XTJ) RSI 62.83, just a little ahead of Consumer Staples. Note that two out of three of the strongest sectors are Defensives.
As a general rule, its best to follow strong stocks in the strongest sectors.
In XXJ, the two strongest large cap stocks are BEN (RSI 69.23) and WBC (RSI 74.64). Westpac is overbought and Bendigo is nudging on that level.
In XTJ, the two strongest large cap stocks are TPG (RSI 70.16) and REA (RSI 63.36). TPG is overbought
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 XXJ was ANZ where the RSI jumped from 54.52 last week to 67.6 this week. The biggest improver in XTJ was REA, RSI jumped from 55.76 to 63.36 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.
The 10-Day MA of New Lows is now below the 10-Day MA for New Highs, but both metrics remain at very low levels. Until we see a decisive kick up in New Highs, I think it is advisable to stay on the sidelines.
Here's the cumulative chart for NewHighs-NewLows:
This metric usually 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.
At the moment, however, this Index is not trending strongly enough to say one way or the other.
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.
ASX A-D Line tends to give medium-term trade signals compared to the longer-term signals for NH-NL.
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. It is, however, getting close to its 10-Day MA. Watch for a turn-down below the 20-Day MA to predict a bearish reversal.
3. Strong-Weak Stocks Cumulative.
This chart has turned bullish being above its 5-Week MA. It is complementary to NH-NL and A-D charts.
The Number for SS-WS has fall back to 8 after reaching 19 in the previous week. Again, this is indicating a slowing in upside momentum
% of Stocks above key moving averages.
1. % of stocks above 10-Day Moving Average: Last Week 80%, This Week 47%.
2. % of stocks above 50-Day Moving Average, Last Week 75%, This Week 75%.
3. % of stocks above 200-Day Moving Average, Last Week 43%, This Week 43%
Short-term momentum (Stocks above 10-DMA) shows a slowing. No change in the medium-term and long-term momentums.
If this trend continues in the 10-Day Figure, that will flow on to the 50-Day and 200-Day Figures.
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 approaching the 200-DMA and is overbought. That's a recipe for a pull-back. 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 clearly to the upside.
4. XXJ and XTJ 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 losing momentum. Momentum has to fall, before a reversion to the down-side occurs.
