Updated BHP Chart, as at 25/2/2010

BHP is the largest company in the Australian stock market and the largest diversified miner in the world. It is difficult to imagine a bullish Australian market without a bullish BHP. As such, BHP is the bellwether stock in our market.

Since the bull market began in March09, BHP has been in a remarkably consistent uptrend channel. The dotted uptrend line is almost exactly replicated by the 150-Day SMA (not shown on the chart). Whenever BHP has dropped down to that SMA it has bounced up again towards the top of the channel.

But ... not this time.

This time it appears to be forming a bearish flag. If it drops below the trend line and the 150-Day SMA, then it would seem that the long term uptrend is over. Next major level of support looks to be around the 36.00 level.

The On-Balance Volume Chart has already broken below its 150-Day SMA, so that adds to the probability of a break lower.

Extrapolating to the broader market, if BHP breaks below the uptrend line - then the key 4500 level on the XAO is also likely to be broken. Next major areas of support look to be 4300, then 4100.

Of course, BHP might continue upwards. We shall see.

Cheers

Red

Just a thought

hmmm. It is always a good thing to reflect on what one has written.

The market has a habit of humbling all who participate in it.

Where's all this leading?

Well - I am accusing myself of hubris. And I plead guilty. My reference to "dumb" money is the case in point.

Every one is dumb where the market is concerned. Sometimes we may make a good call - while others don't. If you crow about that - the market will humiliate you, somewhere, sometime.

So. I take on myself humility.

If I don't - the market will do it for me.

Anybody who calls somebody else "dumb" in the market - is merely inflating their own ego.

So - I shall continue to try to make sense of the chaos we are immersed in - and, with experience, knowledge, and some help from the stock market gods, my pocket book will be bigger than now. And ... I shall remain humble.

Cheers

Red

50 Leaders 25/2/2010

As mentioned in the previous post, the 50-Leaders were down -1.1%, in line with the general market.

The current rise and fall back of the 50-Leaders has been terribly orderly. No real indication of panic buying or selling. The 50-Leaders are still not over sold.

Although the uptrend line from early February has been broken to the down side, the MACD is still above its signal line.

The XAO and XFL are getting close to support provided by the lows in October an November.

So a scenario suggested in the previous post of a drop'n'pop tomorrow, could see the general market test the support level just under 4600 on the XAO (and XFL) and then bounce. If that happens, then a test of the recent highs around 4730 on the XAO seems likely.

Basically - this looks like a non-trending market. We can expect further range trading. And the short term swing traders will get cut to pieces.

Well - that's a good story. We'll see how it pans out.

If a clear break below the 4600 area occurs - then all bets are off - and we're then looking at another test of 4500.

Cheers

Red

General Market Comments - 25/2/2010

The market was down today with the All Ordinaries -1.1%.

On the short term chart, a divergence has opened up on the MACD Histogram and the RSI is getting close to the 20 level. So, if the market opens on the down side tomorrow we might see some strength in the market later in the day. We shall see.

There were no real surprises in the market today, unlike yesterday. Advance/Decline ratio was in accordance with the market. The 50-Leaders were down -1.1% while the Small Ordinaries were down -1.4%. That's probably about what you'd expect on a down day - risk aversion was clear.

My suggestion yesterday that the anomaly between XFL and XSO being caused by "dumb" money looks probable - especially with the burst of early buying today followed by a relentless sell down.

I'll put up another posting soon regarding the 50-Leaders.

Cheers

Red

BHP - 24/2/2010

Yesterday, I said that BHP was looking good, but to wait and see how things panned out today. I pointed out in that post that the Daily MACD had not crossed the ZERO line. It's one of my (very cautious) trading rules not to take trades on stocks where the MACD is below the ZERO line.

That caution paid off today.

BHP is now back below the 50-Day SMA. The chart is now left with a bearish island reversal of two candles sitting above the 50-Day SMA.

The Daily Williams %R has dipped marginally below the mid-line. The Daily RSI has also dipped marginally below the mid-line. Those are bearish developments.

The stock has also dipped below its short term uptrend line.

On the short term chart (10-days, one-hour intervals) there is no sign on the MACD Histogram of a divergence suggesting a move up. The RSI is below 50 but still well above the 20 mark where reversals often occur on the short term chart.

Good support lies around 40.50. A break of that would be ominous. A bounce there could keep hopes alive for a solid upward movement in BHP.

But - at the moment - all bets for BHP are off the table.

Cheers

Red

Market Comments: 24/2/2010

Today, the short term sell signal from Monday and the dragonfly doji from yesterday played out - as expected, to the down side.

The action today was a bit nasty - the XAO down 1.4% on the highest volume on the XAO for the past eleven trading days.

Nine out of ten industry sectors were down. The only sector up was Utilities, up marginally +0.2%

An anomaly today was the Property Trusts - up +0.8%. Why? Beats me. None of the three big property trusts (WDC, CFX, SGP) had any news or announcements made. But, I'm just a simple chartist - so a lot of things are unfathomable to me. I'll just keep watching the charts.

Another anomaly today was the divergence in the 50-Leaders/Small Ordinaries. The 50-Leaders were down 1.7% while the Small Ordinaries were down only 0.4%. This suggests that risk taking was still high amongst the punters. I'm surprised by these figures today. The only explanation I can come up with is that many retail traders (who may represent the "dumb" money) were presuming that this drop is only short term and they were getting in to grab some "bargains". It's just a thought. But maybe this anomaly is telling us to not take too seriously the big drop today. I can't really accept that given the volume behind the drop. The anomaly is not backed by the UpVol/DownVol ratio - which was a bearish 0.56. That's almost 2:1 in favour of the Down Volume. But perhaps that is skewed by big volumes in Materials and Financials which were both well down today. So - to cut a long story short - I don't know what to make of it.

The 50-Leaders above the 10-Day Moving Average was giving an overbought reading a couple of days ago - so that, with the RSI2 signal provided clues to the sell-off.

It's interesting that the retracement of the 50-Leaders above the 10DSMA has been fairly orderly. The chart line (blue) still shows higher highs and higher lows. Another down day tomorrow may break that sequence.

The Advance/Decline Thrust chart (top chart) is suggesting that the high has been seen for this short-term cycle.

The formula for the A/D Thrust is:

• Thrust = Sumadv/(Sumadv+Sumdec)
• Where Sumadv = Sum of Advances over the last 5 days,
• And Sumdec = Sum of Declines over the last 5 days

After hovering for over two weeks, the chart line has now broken down below the three-period moving average. That's a sell signal.

The three day candle formation on the XAO is a classic reversal pattern confirming yesterday's warning doji. This pattern is: large white candle, doji, large black candle.

Expect further downward movement.

Cheers

Red

BHP - Looking good - wait for tomorrow?

I'm bringing this up because of the importance of BHP to the general market. It's hard to imagine a bull market if BHP is in a bear market.

BHP is looking good - it's formed a clear double bottom.

The Daily MACD still needs to cross above the Zero Line.

The Daily Slow Stochastic is registering overbought.

So we might get a classic process - the stock sells off mildly to work off the overbought status, reverses off the "valley" of the W formation - and then heads north with the MACD moving above the Zero line.

Of course - it might be a bull-trap. In which case, all bets are off. BHP will head south and so will our market.

It pays to wait. I'll miss some by being cautious - but the ones I get are usually rippers.

Cheers

Red

Stodgy Day, 23/2/2010

Nothing much to say today. The market finished virtually flat. Virtually everything was flat.

The A/D Ratio was 0.93 - flat. The UpVol/DownVol Ratio was 0.98 - flat.

The best performing sector was the Financials Sector, up 0.4%. Nothing to get excited about there.

In a general sense the only thing worth commenting on was the disparity, once again, between the 50-Leaders and the Small Ordinaries. 50-Leaders, up 0.1%. Smal Ordinaries, down 0.5%. In itself today's reading is nothing to get carried away about - but it does continue a run of readings in recent weeks where the 50-Leaders are preferred over the Small Ordinaries, i.e., a flight to quality - and bearish in its implications. That is no good as a timing tool, but sets the context for making decisions. This market in the past couple of weeks has been "stodgy" - not just today. Just look at the angle of ascent in the chart of the XAO during this rally - it is quite low. Again - no good as a timing tool - but something to keep in mind.

The candle today was a small dragonfly doji - which at the top of a short-term uptrend often spells a reversal or at least a consolidation.

Given my comments this morning - it looks like we're in for a couple of days of sideways, maybe slightly down, movement.

Cheers

Red

Morning Update 23/2/2010

Strong day yesterday.

RSI2 showing divergence from price.

Slow Stochastic is overbought and appears to be rolling over.

This looks like a short term sell signal.

I'll wait for a cross on the MACD on the one-hour chart.

Cheers

Red

Initial Comments, 22/2/2010

If we live in a bullish world, what would you expect?

1. Up Volume to Down Volume would support a bullish view, i.e., if we have a strong day on the stock market, we would have a ratio of UpVol/DownVol strongly biassed to the Up Volume side.

2. Risk Aversion would be in evidence - Small Ordinaries would be stronger than the stodgy old, safe stocks in the 50 Leaders.

So ... what happened today.

The stock market was strong. Up 1.6%.

UpVol/DownVol Ratio was almost level at 1.06.

The SO/50-L Ratio was ... wait for it ... 0.72

These are big divergences. How will they resolve?

We shall see.

In the meantime, I'm making money on the long side - but I feel more and more that I'm in a game of "pass the parcel" with fewer and fewer participants.

Cheers

Red

Sector Relative Strength- Charts . 19/2/2010

XAO - Renko Chart, Week ended 19/2/2010

Warning signs for long-term investors on the Renko Chart of the XAO (weekly):

• First Red Block since Bull Rally began in March09
• Uptrend broken to down side
• Reversal at the 40-Week Moving Average
• Weekly Slow Stochastic has broken below its signal line.

Look for confirmation of trend reversal:

• Break by Slow Stochastic below 80
• Switch by PSAR dots from below the chart blocks to above the chart blocks.

Cheers

Red

Weekend Summary - week ended 19/2/2010s

Negatives:

• Strong showing by Defensive Sectors in an Up week.
• Relative outperformance by 50-Leaders over Small Ordinaries in an Up week (flight to quality).
• Warning signals in the Ozzie Dollar
• Recent stodgy performance by BHP. (It has moved up strongly after previous reversals.)
• Stodgy performance by 50-Leaders during the past two weeks of up movements.
• Warning signals from Chinese stocks.
• Reversal in the Weekly Leading Index from ECRI
• Daily MACD for XAO below Zero line.

Positives:

• Bounce by XAO off crucial 4500 support area.
• XAO above the 150-Day Moving Average
• Continued strength in the Dow Industrial Average.
• Continued strength in the Industrial Metals Chart.

The Negatives are largely “warning signals”. Until the XAO decisively crosses below the 4500 support level, the advantage continues with the bulls.

Initial Comments, 18/2/2010

The XAO has paused at a clear horizontal resistance level.

Yesterday it broke back above the important 150-Day Moving Average. That's a bullish development.

Today the market was down a little (-0.3%). Not surprisingly, the market had a defensive tone. The S&P Industry Sectors which were up were: Consumer Staples, +1.5%; Telecommunications, +0.8%; Information Technology, 0.8%; Health, 0.4%; and Utilities, 0.4%. Four of these are the standard Defensive Sectors - and, in Australia, Information Technology also often runs counter to the general run of trade.

So five out of ten sectors were up, although the "biggies" (Materials and Financials) were both down.

The Advance/Decline Ratio was slightly on the bullish side, 1.08, and the UpVol/DownVol Ratio was at a similar reading, 1.07.

So - no real damage done today. A day which I expected to be a consolidation day after yesterday's big run up. Nothing in today's trading suggests that the current trend has reversed.

Cheers

Red

An Outsider View

OK Folks, Earlier this evening I gave the conventional view of a sophisticated chart reader.

The market is going up to test the January highs. Right?

OK. Now for the renegade view.

Have a look at this chart of BHP. This is one of my own pet constructions. But it shows a blue horizontal support line which was broken to the upside in mid-July, survived the decline in late October, and now has broken down completely.

This suggests there's something fundamentally awry with the forces in the market.

How is this thing constructed?

Well - it is fairly complex.

First - it uses Alexander Elder's method for determining the "force index" Alexander Elder is one of the "new" faces in technical analysis. The force index is an oscillator based on the difference between today's price and yesterday's price multiplied by the volume today.

(Today's Price - Yesterday's Price)*Today's Volume.

It's a very neat way of understanding the force occurring in a market. If you get a big move up on light volume, you get a much lower move up than if you had a big move up on heavy volume.

What I've done is to take an 8-Day Moving Average of this figure and a 21-Day Moving Average of this figure - discarded the original figures and shown only the Moving Averages.

This gives a short term and medium term trend of the force in the market.

Clearly, the force in the market since late January has been particularly negative - and gives a quite different image from just following price action alone.

Until the green line crosses above the blue line, I'll consider the current market action to be a counter-trend move against the major force of the market which is bearish.

Cheers

Red

Market Comments: 17/2/2010

The big white candle today tells the story. There's not a lot to say. XAO up +2.1%. All 10 S&P Industry Sectors were up, although Telecommunications looked a little weak, up only 0.1%. The next worse performer was Consumer Staples, up almost one percent. The best was Health up 2.6%. (Those who get my email letter know that I've been talking about CSL for some time. I mentioned in yesterday's blog that CSL had become a "buy". So if you bought CSL at the close yesterday, you were up 5.12% today.)

The market still doesn't look overbought. Looking at the 50-Leaders Chart, the percent of stocks above the 10-Day Moving Average is still below the Overbought level of 80. And the other two indicators on that chart are a long way from Overbought.

The Daily Slow Stochastic (see middle pane below the XAO chart above) has just nudged 80. That's probably an "add" to holdings sign.

Volume today was a little on the light side - surprising given the big jump up.

About the only other negative I can mention is a subjective one. Going through the individual charts of the 50-Leaders I came away with the impression that quite a few were showing a short-term bearish upward sloping wedge. I haven't quantified anything there - its just an impression that I have after thinking back on the charts. Something to keep in the back of your mind if tomorrow is a big down day.

I doubt that is going to happen. Probably a consolidation day tomorrow to digest the big leap today. Then probably another push up which could make this market overbought.

But - at this stage - the market seems set to test the January highs.

Cheers

Red

CSL

CSL has now confirmed all the necessary conditions for a "buy". DYOR.

Cheers

Red

Breadth. 16/02/10

Although the market was up today (XAO +0.4%) most of that move can be attributed to the banking sector after Westpac produced an unexpectedly good result. It was up 6.2% while ANZ and NAB were both up around 3%. CBA fell slightly - probably a result of investors switching out of CBA and into WBC.

Given that WBC had such a good result, I'm surprised it didn't carry over to the broader market - given that it probably indicates a robust economy.

Breadth, however, was poor.

Advance/Decline Ratio was a slightly bearish 0.96.

UpVol/DownVol Ratio, however, was a decidedly worse figure at 0.77.

While the broad market was up 0.4% - the 20-Leaders were up 0.8%, while the Small Ordinaries rose only 0.3%.

Out of 10 S&P Industry groups, only two were up: Financials +1.5% and Consumer Discretionary +0.2%.

On those figures, the next move is more likely down than up.

Cheers

Red

Initial Comments, 16/2/2010

The All Ordinaries is caught in a narrow band of support and resistance. A break either way should produce a definitive movement. Up - we'll probably test the January high. Down - how low can you go?

More later.

Cheers

Red

market Comments: 15/2/2010

I'm sure you've see movie images of a crowd at ground level, looking upwards, and a person up on the top of a building threatening to jump. In the background is a concerned, sweating, empathic police person waiting their moment to help the poor distressed person on the edge of the building, but unable to act because, if s/he does, the distressed person might make the big jump.

Meanwhile, down below, the camera crews wait. Some people are yelling out, Jump.

The distressed person moves an inch or two towards the edge. And no more.

Everybody just waits.

That's how it as today on the Australian stockmarket.

On a very low volume day (the lowest volume since the Christmas Holiday period) nothing much happened - but that belies the tensions below the surface.

The market edged just a little closer to the edge. Not enough to go over. But enought to give the crowd below yelling "Jump" a little more hope that their wish will come true. SPLATT

4500 beckons like the Sirens for the Argonauts.

Even the Governator knows this is important. :)))

Cheers

Red

Sector Relative Strength- Charts . 12/2/2010

Market Comments: 11/2/2010

As expected, today was a good solid day on the Australian market. The XAO was up +0.94%, and, apart from Telstra being slammed with the obvious fall in the Telecoms, the move up today was broad based as far as the Industry Sectors/Sub-sectors show.

A/D Ratio was up at 1.74.

The Small Ordinaries outpaced the XAO by a wide margin. It was up +2.3% while the XAO only rose +0.94%.

Given all those figures I was surprised to see the Up Vol/Down Vol at a bearish 0.68.

At best, I think the market will be flat tomorrow - but more than likely down a bit.

Monday didn't follow the usual America penchant for being bullish. So - tonight in America, rather than getting a bearish Thursday we should expect a bullish Thursday. Dunno if that is logical - but it makes for a good story. :))

The chart of the XAO suggests that there may be a bit more in this counter-trend rally. The price has broken above the down-trend line.

Positive divergences from price exist on the daily RSI and the daily MACD Histogram - but the RSI and MACD are still at bearish levels (RSI below the mid-line and MACD below the Zero Line). Plus - the XAO is still below the 150-Day SMA.

So - I think we have a counter-trend rally - but it has a lot of work to do to return the market to a clear bullish stance.

Personally, I wouldn't buy this market with the view to holding for more than a couple of days. (Actually - I wouldn't buy this market at all at the moment. The current run-up might be all that is in it. It could go for another couple of days - but maybe not.)

Evidence as it emerges might change that opinion - but - in the meantime - I'm inclined to the cautious side.

Cheers

Red

Initial Comments, 10/2/2010

Today was gay deceiver day on the market.

At the close (4.00 p.m.) the market was about par for the day (i.e., flat). In the after-market auction it rose a bit for the XAO to be up +0.3%/

So - it looked like a weak day. Well - disaggregation of the Indices shows basically that the weakness was due to the financials - really, just the big banks. Energy was flat, IT was down - but plays such a small part in the scheme of things that we can disregard that.

Every other Industry Sector and Sub-Sector was up, in some cases quite strongly.

That is supported by looking at the Small Ordinaries/Mid-Caps/20 Leaders.

Small Ordinaries: +0.9%

Mid-Caps: +1.5%

20 Leaders: -0.2%

In the 20 Leaders, the following stocks were down:

ANZ, CBA, CSL, MQG, NAB, WBC, WPL.

Seven stocks down, five of those were banks. Thirteen stocks were up. These were:

AMP, BHP, BXB, FGL, NCM, ORG, QBE, RIO, SUN, TLS, WDC, WES, WOW.

So - apart from the banks - strength was seen across the board.

Just to add some more evidence:

Advance/Decline Ratio: 1.44

Up Vol/Down Vol Ratio: 2.15

I think today can be forgotten about. Breadth was good - the market was basically pulled down by CBA's poor report and its effect on the other big banks. Almost everything else in the market was reasonably positive.

Just how bad was CBA's report? Well - the market didn't like it - but didn't hate it. CBA was only down -1.7%. If the market thought it was horrible - it would have been down maybe -5% or worse. I'll leave the analysts to delve into the ifs, buts and wherefores of the report. But the market didn't see it as slit-the-throat time.

So summing up today - it was mostly good. Tomorrow is another day.

But - look out for black swans, and animals (like PIGS) crossing the street.

Cheers

Red

Simple Really 9/2/2010

If BHP doesn't bounce here - the long term uptrend is lost. And with ... the Australian Market.

Cheers

Red