Postprandials, Tuesday 10/5/2011

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I've shown two charts today - XJO (ASX200) and XSO (Small Ordinaries).  XSO is used as a measure of the market to take on risk.

Although similar, the two charts have distinct differences.  The XJO (bottom chart) is just shy of giving "buy" signals.  The XSO (top chart) is now registering "buy" Signals.

XSO Indicators:

1. Relative strength (XSO:XJO - bottom pane) has broken above the down trend line from early April (positive)
2. Stochastic (19.1) has crossed above its signal line.  Its just a smidgin below 20 - the secondary buy signal.
3. CCI (-89.8) has crossed above -100, that's a buy signal.
4. RSI still needs to cross above its down trend line.
5. MACD needs to cross above its signal line.
6. Index chart needs to cross above major resistance.

All that is more positive than the XJO.  Note:  the XJO was down -0.36% today.  XSO was up +0.46%. That's a major positive divergence.

I've been saying for over a week, that our market was showing weakness ahead of tonight's budget.  There are no guarantees but it looks to me like some smart people are positioning for a positive reaction to the budget.  Or at least, nervousness created by the prospect of the budget will be removed.  Certainty will be attained.  And the market will be free to move up unless there are some unexpected nasties in tonight's papers.

Good luck

Red