Market Comments, 30/9/2010

Today's drop did a lot of technical damage to the market. The above chart of the XAO shows three clear negative impacts:

• the market closed below the 200-Day Moving Average, often taken by analysts as the dividing line between bull and bear markets
• the MACD closed below its signal line
• W%R is below its mid-line.

A close by the RSI below 50 would be conclusive (if that is needed). It is only marginally above 50 today.

For three weeks I've been saying I'm cautious about this market. During that time, the market has trended sideways.

Today's action seems to have broken below that sideways consolidation. The break is currently a marginal break, but volatility has picked up and the market seems destined to head downwards.

There's a lot of other evidence I look at that is more esoteric than the above picture, but is also more suggestive of further downside. Some of that I'll be including in my weekend report.

Be careful

Red

Last Hour sell-offs

Above is an hourly chart for the past ten days.

In eight out of the last ten days the market has sold off in the last hour. Doesn't that strike you as a little odd?

The first of those ten days, the sell-off was minimal. But the previous hour was very strong to the down side.

This looks to me like knowing participants selling off into strength.

A sure sign of "smart" money distributing to "dumb" money.

Such judgements are always highly subjective. But I'm offering them for what they are worth - worthy of consideration.

If the market does start to slide to the downside, then the warning signs were there.

Cheers

Red

STW. 29/9/2010

STW is theETF tracking stock for the XJO. People invested in STW tend to be a group of conservative 'savvy" investors and not the group usually dumped in the "dumb money" category.

Previously I've noted an ability of this group to be "right" about the direction of the market. Like any group, they can be wrong - and sometimes they are "right" a bit earlier than they should be.

It just struck me that the On Balance Volume for the STW has formed a clear Head'n'Shoulders formation while the stock is in a sideways consolidation.

That suggests that the sentiment of this group is "bearish". Maybe they are right this time, as they have often been in the past. Maybe they are wrong this time.

I'm just passing the information along.

Cheers

Red

Market Comments, 29/9/2010

Last night I expressed reservations about the apparent breakout in the market on Monday.

Since then the American market has closed decisively higher.

Australia today staged a remarkable reversal. The intra-day drop was about one per cent.

So, we're back within the trading range. 4650/4710.

The current candle pattern is a bit more decisive than anything we've seen in the past ten days or so.

We're probably looking at a bit more downside - but the bears won't be happy until 4650 is broken decisively to the down side.

Cheers

Red

XJO and Volume: 28/9/2010

This chart shows just the XJO (ASX 200) and volume.

Yesterday's action looked like a breakout move. On a breakout move, one expects higher than average volume.

Yesterday, I dismissed the low volume on the basis that yesterday was a Monday, and volume is often lower on Monday than the middle of the week.

However, that may just be a rationalisation. That volume yesterday was just too low for a breakout move.

The more I look at this the more I'm going to discount yesterday's move as significant.

The market remains in a sideways consolidation.

Let's wait for a definitive move.

Cheers

Red

Market Comments, 28/9/2010

One only has to look at the MACD and the RSI to see that we're still in a non-trending pattern. Flat - sideways.

The bulls had a good win yesterday which took the candle above the previous high. Was the break significant enough to say that it was a breakout? Maybe.

I always want to wait to see if there is follow through buying the next day to confirm - and on reasonable volume.

Today - we had a little bit of selling on low volume.

I don't like the three day candle pattern we're looking at here. (You won't find it in Neeson's book on Candlestick patterns.) It consists of a narrow range candle (usually black) followed by a large white candle, followed by a narrow range candle (like today).

It usually means, as far as I can see, that the white candle was formed by a panic driven short covering squeeze - and there was no fundamental reason behind it. So - the third day is a day that lacks conviction. A short-covering squeeze will last more than a day. This one hasn't.

Maybe I'm dreaming. We'll see.

Gold ETF (Gold in Ozzie Dollars) was down a little today - more relatively than the XAO. So that's not good for Gold. But good for the XAO.

Yesterday, I showed a Ratio Chart of Gold:XAO and had a support line drawn in - with the chart breaking marginally below the support line.

Much of Technical Analysis is subjective - seeing shapes in clouds.

So - today I've shown the same chart (updated for today's action) with a slightly different support line drawn in. That's a little less negative at this stage about the Gold ETF.

Gold ETF remains within in narrow consolidation channel - moving sideways (see the top chart). In a way this is an inverse mirror image of the XAO.

A break either way by Gold and XAO will probably set the medium term direction.

I'm still waiting.

Cheers

Red

Gold/XAO comments 27/9/2010

Today, the Ratio chart of Gold/XAO dipped below the long term support line.

That movement provides confirmation of the positive move by the XAO and puts into doubt a rally in the ASX Gold ETF.

The dip is only marginal and it could recover quickly - but at the moment, I wouldn't be betting on the Gold ETF but would have my money on the general market.

Cheers

Red

Market Comments midday, 24 September, 2010

At mid-day, the XAO has broken marginally below the low of Wednesday last week - a critical level. It has also broken marginally below the 13-Day Moving Average.

The RSI has formed a clear head and shoulders top and the W%R has broken below its mid-line.

Unless a recovery occurs in the afternoon, this looks like the start of a bigger retracement.

We shall see.

Cheers

Red

Market Comments morning of 24 September, 2010

I missed the blog last night.

Here's an up-dated chart of the Exchange Traded Fund for Australian Shares on the New York Stock Exchange.

The divergences on Indicators are now starting to play out. The stock has broken below its uptrend line.

The short term trend is down. This may still may not be the start of anything big.

For a substantial down trend look for:

• a break by the Force Index below zero
• a break by the MACD Histogram below Zero
• a break by the RSI.9 below its mid-line.

Cheers

Red

Market Comments 22/9/2010

"Time is very slow for those who wait." (Shakespeare)

So we wait. So we wait.

The lines in the sand are clear.

4710.5 and 4648.9

Those are the boundaries for the past six days of trading. A very narrow range.

Today was the narrowest of ranges.

Range contraction gives way to range expansion.

We're coming to the end of this consolidation.

Which way will it go?

Nobody knows. What will the catalyst be for a break? Nobody knows.

Just keep watching the chart.

Cheers

Red

Market Comments 21/9/2010

I've done all sorts of number crunching tonight trying to discern what direction the market might take.

In the end, I'm still left with a simple chart of market action.

A sideways consolidation.

Today was remarkable action. I said a couple of days ago that near term direction would be decided by the high of last Wednesday and the low of last Thursday.

The high on the XAO last Wednesday was 4710.5. The high today was 4710.

I'll leave that with you to ponder on.

Today's action leaves us with two possibilities:

• a break above 4710.5 - and further upside
• a break below 4648.9 - and a double top - with much further downside.

I really don't put much faith in precise points on charts. But today was simply ... incredible.

Anyway - we wait for confirmation of market direction.

The market will show us the way.

Cheers

Red

Morning Comments, EWA - 21 Sept., 2010

EWA is the Exchange Traded Fund on the New York Stock Exchange for Australian Shares. Sometimes it leads the Ozzie market, sometimes it follows. Last night it was up 2.25%.

Divergences on the RSI.9 and Force Index.13 suggest a pull back is not too far away.

The Stock set a new high last night for this Aug-Sept run-up. The candle finished inside the top BB(13.2) which has dipped down. That's often a sign of a top.

The RSI.9 hit 75 - well overbought - but not as high as the most recent high - setting up the negative divergence.

Caution is required.

Gold ETF as at 20/9/2010

I like the Gold ETF as a counter trend play against the All Ordinaries Index. Above is the Gold/XAO ratio chart.

At the moment it is looking positive for the Gold ETF - but a move above the 13-Day Moving Average would be an initial signal.

A cross by the 13DSMA above the 55DSMA would be a strong bullish signal.

I'm still waiting patiently for a decisive move upwards by the Gold ETF.

That stock - and the general market - are currently finely balanced - one to the upside, the other to the downside.

We'll know which way things will move in the very near future.

Market Comments 20/9/2010

Today was a day of indecision. The market remains in limbo. Volume was low and the market was down a little. A couple of defensive secvtors were up, but, in general, sectors followed the market lower.

This is looking more like a consolidation pattern than a reversal pattern.

Bulls would be more pleased by today than the bears.

But that proves nothing.

The lines in the sand still remain at the high of last Wednesday and the low of Thursday.

A break either way from those should prove to be decisive.

Another benchmark is the 13-Day Moving Average. A break below the 13-Day Moving Average should prove bearish.

I'm still leaning to the bullish side - but what I think means nothing. I'll be guided by the market.

Cheers

Red

Ok, it's time for a rant.

Here's what YahooFinance7 said today about the fall in the Ozzie Market:

Analysts said a chance the United States may fall back into recession -- dragging down other economies and demand for Australia's main commodity exports with it -- continued to sap buyer confidence.

Gimme a break - that story has been around since Methusaleh was a pup. That comment is about as banal as it gets.

And how about this one from ComSec:

The Australian share market eased today, as investors elected to book profits after the recent September rally.

Yeah - the market only "eased" today.

Just have a look (above) what happened to two of the highest price stocks on the Australian market. If that's an "easing", then I'll expect Jenny on ABC news to describe the next cyclone as a "minor weather disturbance". :)

Have a look, can you find a bigger candle in the past three months than that big black monster on the CBA chart? I can't.

On Monday and Tuesday, the market sold off in the last hour. Monday was more obvious than Tuesday, but both were clear sell-offs, and on increasing volume. Last hour sell-offs are usually precipitated by professionals in the big institutions. This, to me, was a clear example of the smart money selling off to the dumb money, who were still rushing in to buy this market. Then - have a look at that candle on CBA. It actually set a new 20-Day High today before collapsing. A lot of "dumb money" got caught by that down draught.

If you couple that with the slowing of momentum that I chronicled yesterday, then there was a convincing case for a down turn. Today's action should have come as no surprise.

Still - I mustn't get too cocky. The market has a way of biting you on the backside if you do that.

The market has good support below it - until that gets taken out any major retracement remains in doubt.

Cheers

Red

Gold ETF as at 15/9/2010

The Gold ETF has bounced strongly off the 150-Day SMA.

The Slow Stochastic is close to breaking above its down trend line.

A further move up by the Gold ETF would be a buy signal.

This would also likely be a negative for the XAO.

Market Comments, 15/9/2010

Patience and self-knowledge are the two biggest assets in trading the markets.

When an overbought market starts to present itself, it is so easy to think that "next day" it will fall. It rarely does. But it will, one of these days. Soon.

The RSI, for instance, still has room on the upside to reach its classic overbought reading of 70.

But there are plenty of other readings calling this as overbought.

Plus, momentum is slowing. For example, the number of new 20-Day highs in the 50-Leaders this week has been:

• Monday - 22
• Tuesday - 18
• Wednesday - 13

In a rising market we want to see new highs continuing to rise. The market is not, however, in serious threat until we start to see New Lows also start to rise. Today they were sitting on a Zero.

I have a "bodgie, homemade" indicator that gave a "sell" signal today. What? On an upday? You must be mad.

Maybe.

It's an early warning signal. Last time it gave a "sell" signal was five days before the top in June. In simple terms, it is based on the number of up-days compared to the number of down-days over a specified period of time.

Let's see how good it is this time. Maybe its a lot of rubbish. :)

I'd reiterate the criteria for a sell signal that I gave at the weekend:

• a break below the uptrend line from the low in late August
• a break by the MACD below its signal line
• a break by the RSI below its mid-line.

Patience.

Cheers

Red

Gold ETF as at 14/9/2010

Clearly, the line in the sand for the Gold ETF on the Australian market is the 150-Day SMA.

Currently it is being held up by the support of that import Moving Average.

The Gold ETF tends to trade inversely to the Australian stock market. So - while the XAO has been attacking the 150-Day SMA from below, the Gold ETF is now doing the same from above its 150-Day SMA.

If both win, then the Australian stock market is going higher, and the Gold ETF is going lower.

If both fail, then the Australian stock market is going lower, and the Gold ETF is going higher.

Fascinating stuff.

Cheers

Red

Market Comments, 14/9/2010

We have a long term and medium term upsloping wedge pattern. That's bearish.

Today the market tried to escape upwards out of it but fell back almost 2/3 of the early rise. Much of the fall back occurred in the last hour of trade, suggesting institutional selling was the reason. (Retail buyers buying early in the day/institutions selling later in the day = dumbmoney/smartmoney.)

A dark candle tomorrow would confirm the reversal; but until we get that - the trend is still up.

Most of my oddball indicators are still overbought, but a couple are showing a slowing of momentum.

The new 20-Day Highs on the 50-Leaders rarely gets over 20 (out of 50) before a reversal sets in. Yesterday, New Highs hit 20. Today they hit 18. That's not a reversal of the trend, but a slowing of momentum. Momentum must slow before a reversal takes hold.

I could go on about a lot of other statistics - but the chart of the XAO says it all.

I'll be surprised if there's much left in this rally. It could, of course, just consolidate and then head higher. I'm sure the bulls are thinking that way.

I'll sit on the fence. But a break below that uptrend line would make a lot of bears happy.

Cheers

Red

Woolworths 13/9/2010

In my weekend mailout to subscribers, I suggested that Woollies had had its run.

Today say a big gap down. The stock might come back to fill that gap in the next couple of days, but I wouldn't bet on it.

That's a fairly convincing sell signal for me.

Cheers

Red

Market Comments, 13/9/2010

Well, we had a bullish day on the Australian market. XAO up 1.15% on good volume.

After my most recent pessimistic post people must be wondering if I've changed my mind.

Well, firstly, clearly we haven't met any of my criteria for a fall in the market.

I think I'll give this one more day - and if we get a solid up day, I'll hoist the white flag.

About two weeks ago I was reasonably bullish on this market; but events of the past two weeks changed that attitude.

The chart pattern on the XAO (see above) is a bearish pattern (ascending wedge).

Many of my odd-ball indicators are now at levels seen at market tops.

So this looks to me like a last gasp effort.

The market still hasn't exceeded the resistance level high set back in June. A close above that would seem decisive.

And then we're faced with a very overbought market.

That's always the Technical Analyst's big dilemma. Go short at extreme overbought levels? Or go with the flow?

I'm still betting on a sizeable retracement at this stage.

Cheers

Red

Weekend Summary and Conclusion, week ended 10/9/2010

SUMMARY AND CONCLUSION

For many weeks, Ive followed a relatively standard procedure in the Weekly Stock Market Report. Its been a matter of following the template and punching in the changes for the week.

This week Ive changed that - not for the first part of the report but for the latter part.

Pardon me if I express a little hubris. This may be one of the more important reports I have written.

When I began writing this week's report, I expected to follow a slightly bullish theme.

But, the thinking is in the writing. I really don't know what I think until I write it. And as the evidence accumulated, I changed with the thread of the report.

Now, look at the evidence:

• The market is consolidating long, medium and short-term views in the market suggest it could go either way,
• The Ozzie Dollar is strong but at a long-term resistance level,
• Volume is dropping off, often a sign that a market is topping,
• A big speculator is betting this market will fall,
• Negative divergences on Technical Indicators on the copper chart (a consistent leading indicator) suggest the next move is down,
• A negative divergence exists between the Russell 2000 and the Dow. This has also been a consistent leading indicator,
• Short-term, breadth on the 50-Leaders has weakened - a negative.

And Now, (drum roll) ... it is September, historically the weakest month in the year.

The evidence is mounting for a significant turn down by the market.

Despite all that we must let the market show the way.

If this is to follow the historical pattern (down in September), look for:
o a break below the uptrend line from the low in late August
o a break by the MACD below its signal line
o a break by the RSI below its mid-line.

Market Comments, 9/9/2010

Here we sit. Knocking on Heaven's gate. Will St Peter let us in - or send us down below?

A good strong day on the market today. Up +0.94% (XAO) on above average volume.

It looked to me like a short squeeze. The previous three days were a classic topping pattern, which didn't play out (at least for one day) so the shorters had to cover. I thought it was a topping pattern (and still do) and lots of people going short obviously thought so too. But they had to cover today. So we had high volume.

But the Index still didn't break decisively to the upside. We're still at the top of the range - waiting for a decisive move.

Something didn't smell right about today (besides the short-covering thesis mentioned above).

So, we had a strong (but not spectacular) day today. On such a day, one would expect the Small Ordinaries to outperform the XAO and the 50-Leaders. What did we get?

• XAO. +0.9%
• XFL (50 Leaders). 1.0%
• XSO (Small Ordinaries). 1.0%

hmmm. Not much solace there, either way.

Next we look at the mid-caps.

• XMD (Mid-caps). 0.8%

A slight negative bias there but not much.

Let's compare today with another similar day.

Monday was up 0.8% and closed at 4616.

Today was up 0.94% and closed at 4621.

UpVolume/DownVolume ratio on Monday was 3.13

UpVolume/DownVolume ratio today was 2.25.

How significant is that? I dunno. But it just doesn't look right.

What do you think?

At the moment, we now have the third touch around the 4600 area.

If it fails here - I think it's a goner.

If it goes through here convincingly. I think we've got a new bull market.

Cheers

Red

• 
  

Gold ETF as at 7/9/2010

As you know, I have a deal of respect for the Gold ETF (Gold in Ozzie Dollars) as a hedge against the Australian market.

Currently the Gold ETF is at a critical level. A major marker for trading the Gold ETF on a medium/long-term basis is the 13/65 Day Crossover.

The Gold ETF has been in a consolidation zone (see chart above). Yesterday it marginally dropped below that zone but today clawed back into it.

A break above the down-trend line from June, and a concurrent positive break by the 13DSMA above the 65DSMA, would be positive for the Gold ETF and a negative for the Australian stock market.

Remember, a play on the Gold ETF is as much a play on exchange rates as it is a play on the Gold price (however you want to denominate it).

Please - do your own research. Get professional advice - and ignore everything I have to say.

I just sniff flowers in the mid-day sun.

Cheers

Red

Market Comments, 7/9/2010

The market was flat today - a bit of excitement was generated by the Reserve Bank and the Three Amigos, and after a sharp kneejerk reaction downwards, the market said, hey - that don't mean truckloads - and came back to par.

So - we're left with the charts. Let's deal with the XAO charts first.

If we look at the intra-day chart, the gentle upsloping wedge I mentioned yesterday played out perfectly today. The market broke below the supporting line of the wedge, hit the 65-period moving average and bounced back up to hit that support line from below. It is now acting as resistance. The most likely direction from here is down.

Looking at the daily Chart, we're at the top of the dividing range. 4600.

The chart is at a clear resistance level in price, and a major Moving Average (150-Day SMA).

Does the market go up - and to green pastures or, does it fall back into the abyss?

The intra-day chart is suggesting a down move.

Now - have a look at the A/D Line and the RSI for the A/D Line.

The A/D Line has powered up to new highs - even above the April high.

The RSI is showing a very clear negative divergence suggesting the next move is down.

My thinking - the market is going down. Just the humble opinion of an old addled chartist. Do your own research, and don't believe a thing I say.

Market Comments 6/9/2010

I continually shake my head at the extraordinary beauty in the market. It's ability to confirm and confound, to portray "fearful"symmetry, to offer hope, to tantalise. Homer would have written great epics out of a hero's journey through the terrain, the world that the market presents.

Enough of that. What brought on that bit of poetic tripe? You may well ask.

• First, today's XAO finished at 4615.7. August's closing high was 4615.6. Close enough?
• The XAO finished marginally above the 150-Day SMA.
• The 50% retracement of the April/May decline is 4620 (give or take a few points).
• Today's high was level with the high 20 days ago, i.e., the August high.
• The market took 12 days from the August high to reach its low, and then 8 days up to reach the high of today. A ratio of 1.5:1.

OK - enough of the aesthetic values of the market. What about some hard core stats?

Is it overbought?

Yes and No. The RSI is just above the 60 level. That's the level I'd expect a retracement to occur in a bear market. If this is switching over to a bull market, then there is plenty of upside left.

Looking at the 50-Leaders chart, Yes, this market is overbought. The stocks above the 10-Day MA are well above 80% and now the stocks above the 50-Day MA are at the 80% level (overbought).

A few days consolidation with a downward bias would be healthy for the market.

Now ... for something completely new. I've never done this exercise before, so I have no historical basis for assessing the evidence, but the following figures did concern me. Today was a strong up day (XA) up 0.83%) - nothing extraordinary, but solid.

23 out of the 49 50-Leaders finished lower than their opening price. (Yes, dear reader, you read that correctly. There are only 49 stocks in the 50-Leaders because Lihir Gold has been taken over by Newcrest and hasn't yet been replaced in the 50-Leaders. So, at the moment, only 49 stocks show up in the 50-Leaders.)

So almost 50% of the 50-Leaders finished below their opening quote.

Is something amiss here? It sure looks like it to me.

Now, have a look at the first chart - a 5-Day 15-Minute chart. I've seen hundreds of charts with formations like this - a gently sloping uptrend wedge. More often than not, they break to the downside. They don't have to. But usually they do.

So - the evidence/prognosis is?

We're at medium term resistance.

Lots of indications suggest a downward movement here.

If the market can overcome the negatives at this point - we're in the grip of a very powerful move.

Forget about September being the worst month of the year - just hold on to your hats and enjoy the ride.

Cheers

Red

Weekend Comments, week ended 3/9/2010

The XAO had a strong week this week but remains in a trading range. Last week, I said that there was plenty of evidence that the market was at a short-term bottom. That played out perfectly this week.

So, what now? If this was late-October or early-November, Id be inclined to say No Guts, No Glory, we're at the start of a medium-term bull market. But its early September.

There's not much evidence, yet, that this market is topping other than some over-bought readings and strong resistances ahead. But, as a mythical Sage said, over-bought can get more over-boughter. So, there may be a bit more in this. It's now a matter of going with the flow. The trend is up, I'll stay with the trend until it turns around.

There's a lot of fear in the market regarding the month of September, which is traditionally the worst month of the year. It doesn't have to be. But it does suggest that one should keep the finger hovering over the sell button and use it on any break lower.

Market Comments 2/9/2010

Charts afford us the luxury of telescopic vision. All we have to do is look at weekly, daily and hourly charts to see how things are going from the distance, closer up, and microscopically.

Today continued the upward trend in the short term. Looking at the indicators on the hourly chart, the MACD Histogram is showing a negative divergence. The MACD is close to falling below its signal line. The Slow Stochastic is heading down - negative.

On the daily chart, the MACD has crossed above the Zero line. That's an important development in the medium term. The RSI is well below an overbought level. But the Slow Stochastic is showing overbought. Some softening in the short term seems probable.

On the Weekly Chart, matters are still trending sideways, but the last candle looks very positive. Otherwise, indicators are non-trending.

So, what's the conclusion from this.

The market looks like softening in the short term (next two-three days). Any rise after that needs to be very good if it is to overcoming the sideways inertia of the market as indicated by the weekly charts. But the most recent candle on the weeklies is positive.

So, there is a chance that this market can go higher after a bit of consolidation. What happens in the next two-three days for the market seems to be the key to future medium term direction.

Taking a different perspective, on a single chart, is the chart at the very top, the 50-Leaders showing % of stocks above the 10/50/150 DSMAs. The market is clearly in the short-term over-bought sector. Medium term - it is getting close. Longer term it is still in no-man's land.

That more or less accords with the other charts.

So, it seems to me, we're looking at a little bit of softening in coming days. The extent of that will probably give an indication of further direction.

4600 on the XAO still looks like a highly significant area to get through. Until the market gets by that - it is just trending sideways.

Cheers

Red

market Comments 1/9/2010

The first day of spring. And what a way to enter the new season. The All Ordinaries (XAO) was up 2%. Not bad.

Does that take us into bullish territory? Depends on your time scale.

Looking at the medium term (weekly chart above) the chart is still below the 30-Week SMA. The chart still hasn't made a new high. The MACD is flatlining. The RSI is still below 50. The Slow Stochastic still hasn't broken above its signal line.

So - have I deflated bullish expectations enough?

NO?

Well - have a look at the % of the 50-Leaders above the 10-Day SMA. It has now hit 90%. That's overbought.

However, this thrust upwards has a lot of oomph behind it. That's a technical term for momentum. The UpVolume/DownVolume ratio today hit 4.9. On Monday it was over 6.

A reading over 5 is rare. So we now have two days out of three where that magical number has been exceeded or approached.

This thrust upwards is particularly strong.

My conservative instincts tell me that the market is in need of a rest. I'm expecting a sideways to down session tomorrow and maybe the next day - just so the market can get its breath. If I was young and carefree - I'd say - this will continue on and on. hmmmm. Maybe tomorrow will be up - but then expect a couple of days consolidation. Nothing goes up for ever.

This market is ready for some consolidation - but - after than expect more upside.

Please remember, I'm just a mere mortal and an old doddering one at that so take everything I say with the proverbial grain of salt. Do your own research.

Cheers

Red