The Australian market lost a little ground this week, down -0.36%.
I’m neutral about direction for the coming week, but leaning to the down-side.
As far as sectors are concerned, I’m looking at contrarian positions. The strongest sectors are Materials and Energy. They both looked primed for a move to the downside. Some of the weaker sectors look primed for a move to the upside: e.g., XNJ, XHJ, XDJ. We could also see some action in defensive sectors like XUJ, XSJ, XUJ if we get a swing to the downside in the broad market.
XJO Charts, Daily, Weekly, Monthly.
Internals – Australian Market.
Copper
Sector Charts
XJO Daily:
The bearish rising wedge broke downwards on Monday and continued on Tuesday. Wednesday-Friday saw a counter-trend move. The Index remains below the “cloud” which is bearish territory. The long-term Stochastic (50.10.10) remains bearish.
The chart remains above the 200-Day EMA, which is a positive.
Until we get some bullish signals, it’s best to remain cautious. Wait.
XJO Weekly:
XJO had a small fall this week -0.35%. The long-term trend remains up.
Indicators are on “sell” signals. Wait.
XJO Monthly:
XJO is into the first week of October. It is too early to make any definitive conclusions on the basis of this chart.
Both the long-term Stochastic (50.10.10) and the short-term Stochastic (14.3.3) are in the don-not-buy zone above 80.
INTERNALS – AUSTRALIAN MARKET.
XJO was down a little this week and internals are weakening. The number of stocks in the ASX100 that are above their 200-Day MA fell from 57% the previous week to 53% this week. That’s getting close to a bearish condition
Percent of ASX100 Stocks positive on the Directional Movement Index fell from 51.5% to 39.4%. That’s a bearish reading. The % of ASX Stocks above their 50-Day EMA fell from 41.4% to 35.4%. That remains bearish for stocks.
We can see from this chart that the market is down to a zone where bounces have occurred in the past. Indicators can go lower, however, as we saw in February, 2018. If we see the shorter term indicators (% of stocks +ve on DMX and % of stocks above 50-DEMA) get down below 20 – then bounce – we’ll have a buy signal.
Four out of 11 Sectors were up this week, but the most important sector (XXJ) was down -1.43%. XXJ includes the four big banks. The best two sectors were the export-oriented resource sectors, XMJ +1.9% and Energy +1.96%. The worst two sectors were XDJ -2.21% and XPJ -1.84%. Both of those sectors are focussed on the domestic economy.
Copper Futures:
Copper is in a sideways consolidation above the old double bottom. Such action usually implies a break to the upside. The short-term Stochastic (14.3.3) has broken below the long-term Stochastic (50.10.10) – that’s a bearish signal. Wait.
SECTOR CHARTS
XMJ:
XMJ has been in a strong bullish rally. Short-term Stochastic (14.3.3) is at 97.26 in the “Do Not Buy” zone above 80. Long-term Stochastic continues to rise. Wait for a pull-back and then bounce to look for buying opportunities.
The four strongest stocks are S32, NST, AWC and IPL.
XEJ:
XEJ is in a similar case to XMJ. It has had a strong bullish rally Short-term Stochastic (14.3.3) is in the “Do Not Buy” Zone. The long-term Stochastic (50.10.10) is also in the “Do Not Buy” Zone. A break by the short-term stochastic below the long-term Stochastic could be a sell signal.
The strongest stocks are Santos, Woodside and Whitehaven Coal.
XIJ:
XIJ has had trouble breaking above horizontal resistance. Stochastics and Dynamic Zone RSI are on sell signals. Wait and see how this plays out.
XXJ:
This is a very bearish chart. As a general principle leave the Financials alone.
XXJ has nineteen stocks in the large-cap ASX100. Only three of those are out-performing the XJO: QBE, MFG and MQG. QBE and MFG are by far the best performers.
XUJ:
XUJ (Utilities) has rallied nicely since its low in mid-September. It remains below the “cloud” so this could be a counter-trend rally. Be cautious about buying anything in this sector.
The two strongest stocks are APA and Ausnet.
XDJ
XDJ has been in a pull-back since the end of August. It now is finding support at the 200-Day EMA. If it has a significant bounce here it could be OK. Indicators are at a level suggesting a contrarian position could be worth thinking about. Watch.
XHJ:
XHJ has been in pull-back mode since early-September. It had over-shot the Standard Error Channel, and, as often happens in these cases, the ensuing correction over-shot on the downside.
Indicators are now suggesting that taking a contrarian position might work out well. Watch.
Strongest stocks are RMD and RHC.
XNJ:
Like some other sectors XNJ has been in pull-back mode since the end of August. Both Stochastics are now in the Buy zone. Watch for a break to the upside in those indicators for a contrarian play.
Strongest stocks are Brambles and CIMIC.
XSJ.
XSJ has been in a pull-back since mid-August. It is now consolidating at horizontal support.
Theory suggests this should break lower.
Indicators are now giving short-term buy signals so we could get a counter-trend rally if the index bounces here. Wesfarmers received a favourable court finding on Friday clearing another hurdle in its efforts to spin off Coles as a separate entity. That could be a catalyst for upside movement in the index.
XTJ:
In August, XTJ had a spectacular rise which broke the bear market which had held it since early-2015.
Since August, XTJ has been consolidating in bullish territory above the 200-Day EMA and the “cloud”.
Indicators are on short-term buy signals.
XTJ consists of only two large-cap stocks, Telstra and TPG. TPG is preferred, but Telstra is worth a look.
XPJ:
XPJ has been in pull-back mode since mid-September when to failed at horizontal resistance.
It has now come back to dual support: horizontal and the 200-Day EMA.
Friday’s candle was a “hanging-man” which often comes at the end of a trend. Coming at dual support adds more significance.
We could see a bounce here. If we get that, it should provide at least a short-term bullish trade.
Strongest stocks are IOF, CQR and GMG. IOF is under the influence of a take-over offer – leave that to the professionals.
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