Finspiration Australia. Objective analysis of the Australian stock market and overseas markets.

 Thu. 20/1/22.  American market finishes well down.

Overnight.

Dow Jones -0.96%.  SP500 -0.97%.  Nasdaq -1.15%.  Small Caps -1.74%.  Banks -3.14%.

Most of these indices are approaching or are at support levels.  CCI on the Nasdaq is showing a positive divergence.  We could see a bounce to the upside in the next day or two.

SP500.

SP500 is close to multiple supports:  horizontal support from December lows, congestion zone back in late August and the bottom of the Ichimoku Cloud.  That's powerful support.  I'd expect that support to hold.

If it doesn't, then the SP500 will have formed a large head-n-shoulders formation which would probably lead to much lower levels.

Also on the plus side, the Index is well oversold with an RSI reading in the low 30's.

Commodities:

Commodities Index +0.55%.  Energy -0.63%.  Base Metals +0.96%.  Gold +1.59%.

The big jump in the Gold price is evidence of extreme fear entering the market.  That's not necessarily a bad thing.

Iron Ore +2.3%.

With Base Metals and Iron Ore both positive - that's a plus for our miners.

After 30 minutes of trading, XJO is down only -0.05%.  We could well end up positive today.

Finspiration Australia. Objective analysis of the Australian stock market and overseas markets.

 Wed. p.m. 19/1/22.  XJO breaks down through support.

XJO was down heavily today, -1%.

The index is almost back to the 200-Day MA.  It has found support at that level several times now since the beginning of December.  Everytime a support level gets tested, the weaker it becomes.

For now, after such a big down day, we can expect a bounce to the upside.

The spectre of higher interest rates continues to haunt the market.  Rarely can the Federal Reserve hike interest rates and create a soft landing.  Maybe this time is different?  Powell in his recent testimony said fighting inflation is the key focus of the Federal Reserve, which doesn't sound too much like a soft landing is a concern.

Breadth today was very poor.  Advances/Declines 554/949.  Ten sectors down, one sector up.

VIX hasn't climbed much despite the big drop in the index.  VIX readings for the past four days are:  13.66, 13.53, 13.64, 13.71.  Not a lot of change for this volatile index.

This is important, as VIX depends on a formula worked on the number of puts/calls being bought/sold.  If lots of puts are being sold (sending VIX higher, Market Makers (who sell the puts) have to hedge their books by selling stocks and futures, helping to drive the market lower. Market Makers (usually backed by big institutions such as banks) tend to control the market.  If the market drops heavily, and VIX doesn't move much, then the fall can be attributed to retail investors (the dumb money) and they are usually wrong.

So today's big drop could be a furphy.  We'll see.

European markets opened well on the negative side but are since rebounding fairly strongly.  Still too early to read anything into it, but promising.

See you all in the morning.

Finspiration Australia. Objective analysis of the Australian stock market and overseas markets.

Wed. a.m. 19/1/22.  Nasdaq breaks below 200 DMA.

Overnight: 

Dow Jones -1.51%.  SP500 -1.84%.  Nasdaq -2.6%.  Small Caps -2.63%.  Banks -2.4%.

Nasdaq.

Nasdaq has broken below its 300-Day Moving Average.  That's often taken as a sign of a bear market and the tech sector should be avoided until it is back above its 200-Day MA.

Using Ichimoku, I'd avoid the tech sector until the chart is above the "cloud".

Positive divergence on the CCI suggests we could see a rebound in the near future.

Commodities.

Commodities Index +0.78%.  Energy +1.31%.  Base Metals +0.4%.  Gold -0.17%.

Iron Ore +2.7%.

Overnight Oz Futures -0.9%.

To state the bleeding obvious - we'll open well down this morning.

Finspiration Australia. Objective analysis of the Australian stock market and overseas markets.

 Tue. p.m. 18/1/22.  XJO flat today.  Waiting for U.S. market to open.

XJO was down a little today -0.11%, essentially flat.

In the short-term, XJO remains within its tight sideways consolidation.

Such sideways consolidations usually suggest a continuation of the short-term trend.  After the big down-day on Thursday, 4 Jan, that suggests another move to the downside.

Most sectors recorded small changes one way or the other today.  Nothing much can be read into sector changes today.

Our market has basically gone to sleep over the past two days while the U.S. market is in-active.

We should see some more dramatic moves tomorrow.

Currently, European markets are negative.  Germany down about -1% and UK down -0.7%.  

The U.S. is always the wild card.  Europe can be down.  U.S. opens lower, and then rebounds.

Let's wait and see how this plays out.

Finspiration Australia. Objective analysis of the Australian and overseas stockmarkets.

 Tue. a.m. 18/1/22.  Europe up, U.S. closed.

Overnight.

The U.S. stock and bond markets were closed for MLK Holiday.  Europe rose.  German DAX was up +0.3% while UK FTSE was up strongly +0.9%.  European Stoxx600 rose +0.7%.  Toronto Composite was up +0.8%.  Canada, like Australia, has a strong resources segment, but the composition is different from Australia's.  While Australia is skewed to iron ore, Canada is skewed to energy.  The Toronto index has a degree of correlation with Australia, but it is not strong.

Commodities.

Oil prices were generally higher last night.  U.S. Nymex was up +0.6%.  Copper up modestly +0.2%.  Gold up +0.1%.  Iron Ore fell -2.2%.  That is likely to impact the prices today for RIO and FMG, the two big miners most dependent on Iron Ore.  BHP is more diversified.  BHP up in the U.K. +1.4%.

All of the above suggests a modest positive opening for the XJO.  At 10.06 a.m. Eastern Summer Time, XJO was up just 3.2 points up - not enough to move the %age indicator.

Finspiration Australia. Analysis of the Australian and Overseas Market

 Mon. p.m. 17/1/22.  XJO remains delicately balanced.

XJO finished up today +0.32%.

There was some rotation out of the best performing sectors into the weaker sectors today.  Materials (XMJ -1%) saw transitions into recently weak sectors.  Consumer Discretion (XDJ +2.2%) was the best performing sector today.  A positive report from Wesfarmers helped that sector, WES +2.6%.  Consumer Staples (XSJ +0.9%) also benefitted from the rotation.  Woolworths (WOW +1.3%) was a major beneficiary.

Stocks/Bonds relativities continue to favour stocks over bonds.

Not much can be read into today's action.  XJO remains within a tight sideways short-term trend.  Watch one way or the other for a break outside that range.

Stock and Bond markets are closed in America tonight (our time) for the MLK Memorial Holiday.

Our market usually trades in desultatory fashion ahead of such holidays.  And that's what we saw today.

Finspiration Australia. Analysis of the Australian and overseas markets.

     Weekly Wrap, Week ended 14/1/22.  Ozzie market back into old trading range.

(Note:  Much of today's chart analysis uses terms from the Japanese Ichimoku trend following system.  If you are unfamiliar with Ichimoku, you can find good explanations here and here.)

XJO Monthly Chart:

XJO has had a great bullish trend since the end of the 2020 Covid bear market.  XJO topped in August, 2021 and has since stalled.  January has seen a test of the August, 2021 high and has now retreated.

On this monthly chart, XJO remains above the Tenkan Sen - pale blue line. (mid-point of the past nine candles).  A close below the Tenkan Sen on the monthly chart would be bearish.

Waiting for a monthly close may be too late to save precious dollars from a big fall.  We need to be looking at the Weekly and Daily charts.

XJO Weekly Chart:

On this weekly chart of the XJO, I've marked out the trading range for the Index which stretches  back to early September.  

The Santa Rally broke upwards from the trading range but has since failed and the XJO is now back inside the trading range.

The Tenkan Sen (mid-point of the past nine candles) and the Kijun Sen (mid-point of the past 26 candles) are now coincident - that's indicative of a non-trend market.

There are positives in this chart which suggest we will see a break to the upside.  From the low in early December, the XJO has had a series of higher highs and higher lows - definition of an up-trend.  Ignoring the false break of the Santa Rally, this appears to be making a right-angled triangle formation - which usually breaks to the upside.  A break above the August high would be very bullish.

The weekly XJO Chart shows a fall this week of  -0.8%.  (Remember last week, my headline read "Danger, Will Robinson, Danger).

The top restraining line of the trading range is at 7470.  A break above that should see another test of the old August, 2021 high.

A break through the bottom of the trading range would be bearish.  I'm not expecting that in the coming week.

Daily XJO chart:

In the short-term, The XJO is delicately poised between some important support and resistance levels.

Overhead Resistance comes in the form of a major horizontal resistance level and the Tenkan Sen (mid-point of the past nine candles).

Support comes from the 50-Day Moving Average and the oblique support line - the dashed black line on the chart.

Those support and resistance levels are fairly close together.  A break one way or the other should determine short-term direction of the Index.

One Week Sector Changes:

This week saw three sectors up and eight sectors down.  Breadth was even more unbalanced than the previous week when we had four sectors up and seven down.  Unbalanced markets often lead to more falls to the downside.  The market is currently heavily skewed to the resources sectors (Materials +4.67% and Energy +4.1%).  If they start to fail, without improvement in sectors such as Financials, we could get a quick slide to the downside.

Omicron is obviously having a big effect on sectors skewed to the domestic market.  Consumer Staples (XSJ) was the worst performing sector, down -5.54%.  The big supermarkets (Woolworths -6.29% and Coles-5.71%) are suffering from supply chain shortages caused largely by Omicron.  The same effect can be seen in Consumer Discretionary (XDJ), down -4.53%.  XDJ includes such stocks as Wesfarmers down -7.63% for the week, Domino's Pizza down -10.55%

Information Technology (XIJ) was the second biggest loser, down -4.64%.  XIJ is being affected by the other big negative we're seeing for the market, i.e., rising interest rates, as Reserve Banks attempt to throttle inflation.   Information Technology stocks tend to be heavily leveraged growth stocks, so any increase in interest rates has a negative effect.

The best two performing sectors were Energy (XEJ) +4.27%% and Materials (XMJ) +2.29%.  Those two sectors are the two resource sectors - they tend to benefit from rises in inflation.  Utilities (XUJ continues its recent good performance, up this week +3.57%, another sector to benefit from inflation.  

We have two key themes in the market this week:  Omicron and Inflation

NewHighs-NewLows Cumulative.

For long-term investors, this is one of the most important charts to watch.

The Cum NH-NL is now sitting above its 10-Day Moving Average after a flattening out for a couple of weeks.  The chart provides assurance for now for the long-term investor.

The Strong-Weak Stocks Chart dipped a little this week but remains above its Moving Average, providing a confirmation of the Cum NH-NL.  

The stats for this week were:  Strong Stocks +13, Weak Stocks +17,  on balance ST-WS = -4.  

10 out of 13 of the Strong Stocks were miners or energy producers.  That's another indication of how unbalanced the XJO has become.  Weak Stocks were more evenly spread across sectors.

An unbalanced market often leads to the downside.

Conclusion: This week, the XJO dropped back into its trading range.  It is delicately poised between supports and resistances.  

I'm expecting the XJO to be up on Monday but not enough to force a break of those near-by Support/Resistance areas.  Tuesday/Wednesday may prove crucial for the XJO.

Measures of breadth have shown evidence of unbalancing - often a sign of a down move.

The long-term trend remains to the upside.  The medium-term trend remains sideways.  Wait to see how this breaks before making new investment/trading decisions.