Morning Comments. Tuesday 1/2/2011

The S&P 500 rose 0.77% last night. It remains below the 13-Day Moving Average (just). Volume was a little on the low side. To my eye, that's not a particularly convincing effort.

The Nasdaq was also up last night, 0.5%. It's performance was also less than stellar with volume being low. It also remains below the 13-Day Moving Average.

The Russell 2000 (RUT) was of interest last night. It finished up 0.75% - more or less on a par with the S&P 500. For underlying strength in the market, I like to see the RUT do better than the S&P 500. And it was - until the last two hours of trading. At 2.00 p.m. it was well up on the RUT then in the second last hour of trading it sold off heavily. Again, this is not a sign of strength.

Here is an interesting quote from Bespoke Investment Group (BIG):

Since the start of 2010, the S&P 500 has finished the first trading day of the month higher in eleven out of thirteen months (85%). Additionally, the S&P 500 has also risen more than one percent eight out of thirteen times (62%).

In fact, the first trading day of the month has had such a large impact on the equity market recently that if it wasn't for that day, instead of being up 15.3% since the start of 2010, the S&P 500 would only be up 1.4%.

Hmmm, the odds favour an up night tonight in America. So given the stronger market in America last night, we can expect upside in our market today.

If tonight in America is weak - that will be a big negative.

Good luck

Red

Gold ETF Tuesday Morning 1/2/2011

The Gold ETF rose strongly at the beginning of trade yesterday then fell heavily as the day progressed. It remains in a downtrend.

The Gold ETF tends to trade inversely to the general market. So it's down trend suggests that the current pullback in the market may be short lived.

Last night Gold in Ozzie Dollars fell over one percent. That will set the tone for the opening price for the Gold ETF this morning.

It looks like a test of Friday's low is now on the cards.

Good luck

Red

Market Comments. Monday 31/1/2011

The market (XAO) today was down a moderate -0.5%. That might have been a better result than some people had expected after the big fall in America on Friday night - but the Australian market had already anticipated that fall in trading here in Australia on Friday.

If you look at the Volume Histogram - it is clear that the Australian market is down three days in a row. Only once in the past 100 trading days has the market been down four days in a row. So the odds favour an up day tomorrow.

Plenty of technical damage has been inflicted on the market:

• The Index (XJO) is now below the 13-Day Moving Average.
• the RSI is below its mid-line
• the MACD Histogram is below Zero
• the Stochastic is below its signal line and headed down

However, the medium term trend remains up. Until the 65-Day Moving Average and the Super Trend line get broken to the down side, this trend remains intact.

Breadth

Small Ordinaries Index (-0.3%) was a little better than the general market. Mid-caps Index was considerably worse (-1.1%).

The Advance/Decline Ratio was 0.61. Better than Friday - but not a number to inspire confidence.

To sum up - I'm expecting a bounce for a day a two before the downside pressure reasserts itself. Breadth readings are just too negative to think that this is the end of the decline.

Remember - the stock market is a mechanism designed to take money from the many and give it to the few ... so ....... be wary.

Good luck

Red

Weekly Summary and Conclusion, week ended 28/1/2011

1. TRENDS:

XJO: long/medium-term - up.

XJO: short-term - down

S&P 500: medium-term - up

S&P 500: short-term - down

Nikkei: short-term - down

Shanghai: medium-term - down

Bombay: medium-term - down

Copper: Sideways consolidation

Ozzie Dollar: Sideways consolidation

Australian Relative Strength XAO/SmallOrdinaries: negative for the market.

VIX: Short term - up. Bearish

2. Anti-Inflation measures likely in many countries in Asia, Europe, South America. May constrain growth. This could be a long-term positive for economic confidence.

3. Social upheaval in some Middle Eastern countries. May spread.

4. Ben Bernanke’s QE2 program will probably sustain the American market in the long term.

5. Seasonalities for February in 3rd Yr of Presidential Cycle favour the upside.

6. Near-term Support on the XJO lies around the 4700-4720 area. That may hold up any falls.

7. XJO currently at 4775.

8. Major Support and Resistance for XJO: Above 4800 - bullish; Below 4583 - bearish.

9. Friday’s move down on the American market on Friday night was so dramatic that a bounce on Monday or Tuesday is likely. What happens after that will be most important.

10. Next Week: The probabilities for a down side correction have increased considerably.

11. Any correction is likely to be muted because of Bernanke’s money supply and the strength of the Presidential Cycle in the 3rd Year.

NEGATIVE WORLD EVENTS THIS WEEK - week ended 28/1/2011

NEGATIVE WORLD EVENTS THIS WEEK

A.K.A. - PICK A BLACK SWAN

American Durable Goods Orders below expectations.

Japanese Credit Rating down graded.

Great Britain GDP 4th Quarter contracts.

U.S. home prices fall to 8-month low.

Civil unrest in Tunisia and Egypt. May spread.

Indian central bank raised benchmark interest rate.

Singapore CPI rose 4.6% in December from one year earlier, raising expectations that the central bank will adopt anti-inflationary measures.

Brazil’s annual inflation rate rose to 6.04% … central bank expected to raise interest rates further.

German import price inflation rose to 12%, the highest since 1981, on the back of commodity price increases.

Moody’s raises the prospect of downgrading America’s AAA credit rating.

No wonder the Vix (the Fear Index) blew a gasket last night.

VIX - The Fear Index 28/1/2011

VIX had its biggest one-day jump (last night) since May 2010.

It’s bounced off long term support (horizontal line).

Major Indicators (RSI.9, MACD Histogram, CCI.30) are all bearish for the general market (bullish for the vix).

On cue, the Index is heading up from the first Arc of the Fibonacci Arcs.

AMERICAN MARKET FRIDAY 28/1/2011

Index fallen below the key 13-Day Moving Average. First time since uptrend began 2 months ag

Index fallen below the key 13-Day Moving Average. First time since uptrend began 2 months ago

Major Indicators have weakened.

• RSI - dropped down below 70. Negative.
• MACD below signal line. Negative
• Williams %R dropped below mid-line.

Last two-day candle is a reverse image of pattern that began up trend in December.

This chart screams “sell”.

Super Trend Line still to be broken to downside. That provides some hope for the bulls.

Initial Comments Friday 28/1/2011

I expected a bit of softness today with the weakness in the Ozzie Dollar - but the strength of today's pull-back was a bit surprising.

Tokyo and Hong Kong also had fair sized drops with Tokyo down -1.13% and Hong Kong down 0.77%. So there's something in the wind.

Our market (XAO) was down -0.7%. The Small Ordinaries (XSO) was down a whopping -1.9%. Some of that can be attributed to the fall in the Materials Sector (-1.4%) - but even so the level of Risk Aversion was very high today. And remember I've been banging on for a while about the trend in Risk Aversion. Such Risk Aversion is often the sign of a market top.

The Advance/Decline Ratio was a low 0.55. We haven't seen figures like that since November.

The bulls still have the upper hand - but only just.

That major oblique up-trend line on the chart goes back to late August 2010. While that holds the bulls are still in charge. The XAO went close to touching that today.

Other bullish indicators still to be broken are the 65-Day Moving Average (even lower down on the chart than that up-trend line) and the stepped Super Trend Line which currently lies in about the same position as the 65-Day MA.

On the negative side today were:

• break by the MACD Histogram below the Zero Line
• break by the Williams %R below its mid-line.

A trifecta of bearish signals would be if the RSI also closed below its mid-line. It was just above today at 51.4.

If those three negative signals do eventuate and a break of that major up-trend line occurs, then I think the market will be looking at a sizeable pullback.

But - Dr Ben is still doling out the dollars. So you never know - after all, we're now living in Alice's Wonderland (or should that be Ben's Wonderland):

So many out-of-the-way things had happened lately, that Alice had begun to think that very few things indeed were really impossible.

Good luck

Red

Morning Comments. Friday 28/1/2011

Last night the Dow Industrials were up marginally, +0.04%. The Nasdaq was reasonably strong, +0.58%. The S&P500 was up modestly, +0.22% while the Russell 2000 (Small Caps) was also up modestly, 0.22%.

The markets in the developed world were mixed with the worst of them the Canadian markets, once again affected by a big falls in gold and oil. Tokyo was the best +0.74%.

Overnight the Australian Dollar was down -0.72%. Unless that can be reversed today it may impact negatively on the Australian stock market. That's not showing up on the SPI Futures which is up modestly before the open (11 points).

I had been nervous about the big fall in Industrial Metals on Tuesday night, but last night the Industrial Metals were up 0.97% following a small rise the night before, so that may be counteracting the fall in the Ozzie Dollar.

Today looks like being another muted day on our market. This could go either way. Volumes are once again likely to be high with settlements occurring as a result of yesterday's options expiry.

We're coming into February next week. All months of the year except September have a slight upward bias based on historical records; but February is one of the weakest months. Given the extraordinary run the American market has had since the beginning of December, some weakness in February can be expected. But don't bet on it just yet, Dr Ben is still handing out the Dollars.

Good luck

Red

Gold ETF, 27/1/2011

As expected, the Gold ETF had a solid up day +0.8%. Although not sufficient to bring the chart back into the down-trend channel, the ratio chart (Gold:XAO) did come back to the edge of its "last gasp" support line.

For the time being, however, this is negative for the Gold ETF and positive for the XAO.

Good luck

Red

Market comments. Thursday 27/1/2011

Today was options expiry day, and nothing much happened.

The XAO was down just two points - that's flat. (-0.04%)

The Small Ordinaries were down -0.1% while the 50-Leaders were up +0.1%. Nothing much can be read into that. The Advance/Decline Ratio was 1.02. Again nothing can be read into that.

The Defensive Stocks were a bit weaker today than the Materials and the Financials:

• Utilities -1.1%
• Telecoms -0.5%
• Consumer Staples -0.9%

On the other hand Health was up 1.1%.

Health has been a strong performer in recent weeks.

So - all in all. This was Options Expiry Day. A Nothing Day.

I could make a negative case - a narrow range day on high volume near the top of a long up trend coming soon after two major reversal days (see previous blogs). That's a big negative.

But - maybe today was just Options Expiry Day.

Let's wait and see what happens tomorrow.

In the meantime - the Bulls still have the upper hand. The Trend is UP.

Cheers

Red

An Aside - Who's worth reading? 27/1/2011

On my blog roll, I have listed Barry Ritholtz's blog.

If I have to read one blog about financial and economic matters, my favourite is Ritholtz. (My two avoid-at-any-cost are Mish and Zero Hedge.)

Barry Ritholtz is the author of a well-known book "Bail-out Nation". About the causes and context of the GFC.

It seems to me that he is economically literate, opinionated and independent (read that as "agin the establishment").

Have a read of the Ritholtz blog. Click on the link at the right. And you'll see what I mean.

Good luck

Red

Before the Market 27/1/2011

The Dow Industrials was up just +0.07% last night.

Ignore that. SPX +0.42%, Russell 2000 (Small Caps) +1.76%, Nasdaq +0.74%.

Not a bad night. The Dow Industrials tentatively peaked above 12000 then pulled back to finish at 11985.4. Maybe that's significant. Those round numbers often present as important turning points. Given that the market has had a great run, last night's action on the Dow could be portentous. In saying that, I still have in mind the Bullish Percent Chart for the SPX put up yesterday which is giving a sell signal.

The little spread sheet at the top of this morning's blog shows that, while Australia partied, the rest of the world (except for Japan) had a bullish time.

Of most concern for Australia today is the Industrials Metals Chart above. Last night was positive - but a very short stumpy candle inside a very large down candle the previous day.

The chart has also broken down below a strong support level and shows a clear double top. On the plus side - the chart is getting down close to the support of the 50-Day Moving Average.

Today's opening should have a knee-jerk reaction upwards on the opening, but deeper concerns could take over from there. Australia often takes its lead from overnight markets for the first hour or so - but what happens after 11.00 a.m. (AEST) often determines the direction for the rest of the day.

I don't pretend to be a day-trader - I leave that to smarter people than I. (Or maybe it's dumber?) So I'll just wait and see today and how it affects the over-riding trend. It is also options expiry day today - so expect the unexpected.

But that big dark candle on the Industrial Metals chart (two days ago) could be an over-riding influence.

Good luck

Red

SPX Bullish Percent Index - Sell Signal. 26/1/2011

The Bullish Percent Indices are breadth indicators. The BP Index is based on the percent of stocks giving "buy" signals on Point and Figure Charts.

Note the following on the above chart:

• Chart has broken below the 10-Day Moving Average
• RSI.9 is below its mid-line.
• CCI.30 has broken down below the 100 level.

Recently I've been banging on about breadth on the Australian market (the Small Ordinaries and the All Ordinaries Index) and how the XSO was weakening in relation to the XAO.

Well - we've now got strong evidence that breadth is weakening in the American market as measured by the S&P500.

I feel like that guy in the long gown and beard with a sign "The End is Nigh." :)

Good luck

Red

Gold ETF, 25/1/2011

The Gold ETF had a big drop yesterday. In the past 30 Days the Gold ETF is down -4.9%.

According to the Kitco site, Gold in Australian Dollars is down -2.87% over the same period of time. That's a big discrepancy.

Since the Gold ETF supposedly tracks the price of Gold in Australian Dollars, it looks like the Gold ETF got a bit ahead of itself yesterday with that big fall.

The GoldETF:XAO Ratio Chart (shown yesterday morning) broke down below last gasp support by the end of trade yesterday. Given the discrepancy in the prices for the GOLD ETF and Gold in Ozzie Dollars, I'm ignoring that break until it is confirmed by another day's trading.

Good luck

And Happy Oz Day

Red

Vanilla Icecream Anyone? 25/1/2011

Vanilla Icecream is fine for dessert. But, really, it is a bit boring.

Today was a Vanilla Icecream Day. The XAO was up +0.43%. That's OK - but nothing to get excited about.

Nothing much aberrant occurred in the market breadth stats. Small Ordinaries were up +0.6%, 20-Leaders were up +0.5%, and the Mid-Caps were up 0.3%.

The Advance/Decline Ratio was 1.3 - in line with a modest up day.

A small sell-off did occur in the last two hours of trading. That's not to be unexpected - tomorrow is a holiday - so traders probably didn't want to hold positions over the holiday period - particularly as the American Fed is meeting tonight and tomorrow night. That could produce some fireworks on the 26th (American time) in line with fireworks here for Ozzie Day. Or - it could be a damp squib.

Looking at the chart.

Today, the XAO candle hit the oblique up-trend line in place from 11th January. Such a meeting is sometimes dramatically referred to as "The Kiss of Death". If the market falls back on Thursday - then it may be true this time.

It seems our market will now move according to the reactions in America tomorrow night.

Meanwhile - I'm off to have Moroccan Tagine and Chilli Couscous Salad. Bugger the Vanilla Icecream.

Good luck

Red

World Round-up, morning 25/1/2011

The past 24-hours has been generally strong. Most Markets have been up.

The only two down were the Hang Seng (Hong Kong) and CDNX Composite.

The CDNX which is sensitive to the gold price was down -0.75%. Gold was down last night. (Toronto 300, the broader Canadian Index, was up.)

The Industrial Metals, much more important to the Australian market, were up modestly last night, +0.68%.

Good luck

Red

Gold ETF, 24/1/2011

The Ratio Chart GoldETF/XAO remains above "last gasp" support.

The Gold ETF (Gold measured in Ozzie Dollars not US Dollars) has a high inverse relationship to the general Australian Stock Market (XAO).

As such it provides confirmation one way or another of the direction of the general market.

The GoldETF:XAO Ratio is close to breaking down below support. If it does - that will be bullish for the Australian stock market and bearish for the GoldETF.

Today, both were in sync. The XAO was up +0.6%. The GoldETF was also up +0.3%. On a relative basis the XAO did better than the GoldETF. But the fact that both finished up is a non-confirmation. If one is up, I expect the other to be down. Which one is "right"? That's yet to be seen.

Good luck

Red

Event Stock - WOW. 24/1/2011

Woolworths (WOW) doesn't quite qualify for "Loser of the Day" Award - that goes to Coca Cola Amatil.

But WOW was second (last) on the list.

I monitor WOW quite carefully. It is one of my favourite stocks and I often trade it. Seven days ago it broke above resistance, and by all the usual criteria it looked like a "buy". But it didn't "smell" right. It hit an important resistance level five days ago - and hasn't gone on with the job. I was looking to buy today if the stock bounced here. It didn't.

Today - WOW reported - and the report was not well received. (To say the least.)

I wouldn't give up on WOW - it does seem to be forming a base. And could come good.

But today's action was not encouraging. :(

Good luck

Red

Market Comments. Monday 24/1/2011

You don't have to be Einstein to see the importance of the 4800 area on the XJO (ASX200) chart.

The XJO and the XAO (ASX All Ordinaries) are the two broad measures of the "market".

The fact that the XJO broke above 4800 and then fell back is a bearish sign.

Still - the medium term trend is UP. It remains intact while the oblique uptrend line is unbroken.

But - this market looks shakey - especially is you take in the comments I made earlier in the evening "Initial Comments".

Of course, the market can do anything it wants. It doesn't have to do anything.

But - for mine - I wouldn't be taking long positions right now.

Good luck

Red

Initial Comments, Monday, 24/1/2011

In the weekend report I mentioned the weakness in the Small Ordinaries compared to the general market.

That weakness continued today with the XSO down -0.1% while the 20-Leaders were up +0.7% and the XJO (ASX200) up +0.6%.

The lack of breadth in today's action is confirmed by looking at the Advances/Declines which today had a ratio of 1.03 - basically flat.

Meanwhile the AdvancingVolume/DecliningVolume was mildly bearish with a ratio of 0.93. This is not what one expects on a relatively strong up day.

Today's action was an inside day on lower than normal volume (though it is Monday which is often a low volume day).

Altogether though, the picture is not one of broad strength in the market.

We might have another couple of up-days. But I'll be surprised if Friday is much higher than today.

Good luck

Red

Weekly Summary and Conclusion, week ended 21/1/2011

XAO: long/medium-term trends - Up.

XAO: short-term trend - Down

Dow and SPX - long/medium/short term trends: Up

Daily Indicators on SPX - Negative. Caution.

Nikkei - Medium Term Trend and P&F Chart flashing Caution signs.

Copper - P&F Chart reversed to down side.

Ozzie Dollar Chart - Negative. Caution.

Dow Industrials:Transports Ratio - flashing caution.

Australian XAO:SmallOrdinaries Ratio - flashing caution.

Asian nations (e.g., China, South Korea, Thailand) imposing anti-inflation measures.

Ben Bernanke’s QE2 program will probably sustain the American market in the long term.

Next Week: No idea. The probabilities for a down side correction have increased considerably.

Let the market show the way.

Major Support and Resistance for XJO: Above 4800 - bullish; Below 4583 - bearish.

Event Stock - Fortescue Metal. 20/1/2011

Just three days ago, Fortescue Metal broke above a long term resistance area. That looked promising. But the next day it didn't go on with the job. That rang alarm bells. Today, FMG lost 7.8% and fell back below the old resistance level. The fall was accompanied by very heavy volume. (Temasek sold its entire holding overnight. Temasek is the Singaporean Government's investment vehicle.)

I'm not particularly interested in why things happen - just what the effect is technically on the charts. (So ... the reason FMG is down is because Temasek sold. But why did Temasek sell. Who knows?)

This is a negative event - with a capital N and a capital E.

The stock has broken below the Super Trend Line. The RSI is below the mid-line. The Daily Stochastic has broken below its signal line and below 80.

Given the negative sentiment in the market today and the nature of Fortescue as a bell-wether stock, this augurs poorly for the general market.

FMG still needs to break below the support of the long-term sideways consolidation before a bear market in the stock can be called.

But - a test of that level seems likely. That lies around the 6.30 area - Today's closing price was 6.63. So the critical level is only about 5% below today's close. Given that today the stock was down 7.8%, that level is not far away.

If FMG can break back above resistance, that would be a positive event. Chances of that seem remote.

Good luck

Red

Event Stock - Lynas. 20/1/2011

I've featured Lynas in Winner and Loser of the Day recently.

Today there weren't too many winners. 18 of the top 100 Stocks were positive today. The best of those was Aristocrat Leisure (+2.28%).

Lynas is a darling of the speculative traders and has large ranges on a day to day basis.

Today, Lynas was flat. It finished at the same level as yesterday.

The stock remains in Wait-and-See Mode.

The MACD Histogram remains below Zero - that's a negative.

The Daily Stochastic is below its signal line and headed down - that's a negative.

The Smoothed Repulse and the RSI remain above their mid-lines - that's a positive.

We'll continue to monitor Lynas in the near future.

Good luck,

Red

Market Comments. Thursday 20/1/2011

The XAO was down just over one percent (-1.06%) and higher than average volume. That's the second major reversal candle in four days. The rise from 10th January is looking more and more like a bull trap. But topping patterns tend to be a drawn out process - not a one and done event.

Given the analysis I gave in earlier posts on the relationship between the Major American Indices and the Small Ordinaries and the American Transport Index, the topping process seems to be in process.

The negative divergences between the major indicators and the XAO show that momentum is slowing. That doesn't mean we must have a big correction - but they do flash warning signals.

Until the Super Trend Line on the Index pane is broken to the down side and the major indicators turn negative, the trend remains up. Look for:

1. MACD Histogram below the Zero Line
2. Smoothed Repulse below the Zero Line
3. RSI below 50.

An initial signal will be given by the Daily Stochastic closing below both its signal line and the 80 level.

When all the ducks are lined up - then we'll have confirmation that the trend has turned to the down side.

Currently, the market is flashing lots of warning signs.

Good luck

Red

Dow Industrials and Dow Transports 20/1/2011

The oldest and most venerated Technical Analysis "system" is Dow Theory. There are several parts to Dow Theory but one central idea is that the Dow Industrials and Dow Transports must be in sync for a trend to continue.

"The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air."

The reversal upwards in the ratio chart $INDU:$TRAN suggests very strongly that change is in the air.

Good luck

Red

Morning Comments. Thursday 20/1/2011

Well, my "rocky road" suggestion from yesterday didn't play out. My faith in the Australian market as a predictor for the American market is now shattered. :)

But the American market did suffer last night. Yesterday I pointed out that the Dow/Vix were both up and is usually a good sign that the next day will be down.

The above chart is a variation on the one I showed yesterday (Ratio of Dow:SmallCaps).

This shows the SPX:RUT - S&P500 to the Russell 2000. This suggests that risk appetite in the broad market is collapsing.

This could get ugly.

Last night:

1. Dow Jones down -0.11%
2. S&P500 down -1.01%
3. Russell 2000 down -2.56%
4. AUD/US$ = 100.06, up +0.25%

The strength in the Australian Dollar might ameliorate falls in the Ozzie market to some degree today (unless our dollar falls during the day). But - there seems no doubt we'll be down today.

Good luck

Red

Good luck
Red

Loser of the Day. Wednesday 19/1/2011

Fortescue Metal (down -1.1%) wasn't the worst today. AMP, Ansell, Telstra and Singtel were all worse. But since it was Winner of the Day yesterday, I thought it appropriate to focus on FMG today.

It's not a good sign when a stock breaks above a long term resistance level with a wide range bar, and then can't go on with it for a couple of days.

It looks like the smart money was selling into the buying yesterday, and now, today, there are no buyers left. And remember, today was a strong up-day on the market. The Miners were up +1% today, but FMG was down over one percent.

It doesn't look good.

But - you can't always rely on one day. Follow through selling tomorrow would be a big negative. Follow through buying would be a positive. But, I'm not hopeful about tomorrow.

Good luck

Red

Winner of the Day. 19/1/2011

Lynas was, once again, the Winner of the Day (Top 100 Stocks). Up 5.76% A good solid move finishing at the top of its daily bar - but on light volume. That's not a good sign.

The stock has formed a descending right-triangle. These usually break to the down -side - but there are no guarantees. A break upwards here would be very bullish.

A break below that solid horizontal support would be bearish and we might be looking at the 1.50 level.

The Daily Stochastic remains headed down and the MACD Histogram remains below the Zero Line. More upward action in the stock chart is needed to turn these positive and provide "buy" signals.

Despite the good percentage move - Lynas remains in Wait'n'See Mode.

Good luck

Red

Daily Comments. Wednesday 19/1/2011

Today the market acted "normally". The euphoria over the good results from Apple and IBM in America carried over into the Australian market and it went up +0.7% on good volume.

Appetite for risk was back with the Small Ordinaries up +1.1% while the 50-Leaders was up 0.6%

The Daily Stochastic has a reading in the Overbought range - Caution required. (But as the great stock market sage commented - Overbought can get more Overboughter.)

We've had two days with wide range bars closing near the top of the range. It would be unusual for a third day to occur with such parameters. That doesn't mean we'll see a down day tomorrow - but a weaker day than today is on the cards.

If we see a big reversal day tomorrow, then that would be a big negative.

For the time being, the trend is up. And it is up on all time scales, Long-term, Medium-term and Short-term. Until the trend clearly reverses, the trend remains up.

I hope you read my post from earlier today. The "rocky road" didn't eventuate - but the comments about the general state of the market remains a cautionary note.

Good luck

Red

Let's step back. Morning 19/1/2011

If you listen to the market news this morning, you'll hear that the American market was "up". Yes - the Dow Jones Industrial Average was "up" +0.43%. The talking heads might also tell you that the S&P500 was "up" +0.14%. Probably they won't comment on the disparity between those two figures. The broad market (S&P500) was relatively flat while the big blue chips were up solidly. That doesn't feel like the Appetite for Risk was particularly strong.

Further, the Russell 2000 (small caps) were absolutely flat at 0.00%. No Appetite for Risk there.

Does this matter? Certainly. Have a look at the chart above. It is a ratio chart of the Dow and the Russell 2000. From September to late December - this chart shows that relatively the Dow did worse than the Russell 2000. That's what I want to see to sustain a bull market. Risk Appetite. Punters pushing the broad market up.

Since late December, however, the ratio has been going sideways; plus, the Indicators have formed positive divergences from the charts. This means that momentum has slowed and the market may reverse to the upside.

Risk Aversion is entering the market. If the punters are Risk Averse, it won't take much of a catalyst to send the general market into reverse - i.e., downwards.

Of course, there's nothing to say that the Appetite for Risk can't re-enter the market and the Dow will go on up and up to the heavens. But - the probabilities are now weighing to the down side.

One last point about today's action. The Vix (the Volatility Index, aka the FEAR Index) went up today. Volatility going up on an "up" day is not a good sign. Punters were getting nervous today. Maybe it was a knee tremble about the Apple report coming out after market. Whatever. Fear went up today.

When the Dow and the Vix both rise on the same day, it is usually followed by a "down" day the next day. The Australian market has an uncanny ability to pre-empt moves in the American market. Today here in Australia could get a little rocky.

We shall see.

Good luck

Red.

Loser of the Day. Tuesday 18/1/2011

Goodman Fielder (down -2.96%) and Cochlear(down -2.31%) were the two biggest losers in the Top 100 Stocks.

But today I thought I'd follow up yesterday's chart of Lynas Corporation, the Rare Earth Miner for tonight's example. Lynas (-2.05%) came in only a little better than Goodman Fielder and Cochlear.

Although in absolute terms, Lynas was a big loser today, relative to recent moves in Lynas, today's move was small. And it came on big volume. That suggests something of a battle going on between the bulls and the bears. The bulls may have been buying up today. If the bears are becoming exhausted, the stock could see some good upward movement.

Lynas is close to some good horizontal supports. Today it finished at 1.91. The low eight days ago was 1.865. That's only 4.5 cents away. Today's move down was four cents.

The next major support level lies at 1.765.

That area 1.765-1.865 might provide good support for a while.

Some sideways consolidation at this stage would seem likely. Maybe another day or two down and then sideways.

The Indicators still show there's plenty of room for downward movement. All four Indicators on the chart are headed down with plenty of space below.

Today's action broke the oblique uptrend line from mid-December to the down-side. Not a good sign.

But that low of eight days ago needs to be broken for much more downside to eventuate in the short term.

I still expect Lynas in the medium term to test the congestion area around 1.50 (with a low at 1.465). That may be some time away. However, that's just a worst case guess-timate on my part. I could easily be wrong.

What's the bullish scenario? A break above the oblique down trend line from 4January (with good volume) would revive Lynas's chances. That would need to be confirmed by a break above the stepped Super Trend Line on the price chart.

I favour the bearish scenario. But - the bulls could come back. Watch that down sloping oblique trend line for a revival of the bullish case.

Good luck

Red

Winner of the Day. 18/1/2011

Winner of the Day from the Top 100 stocks was clearly Fortescue Metals, up 8.02% on good volume. Today's movement took the stock chart well clear of the long sideways consolidation in existence for the past three months. The big move today was due to favourable market reaction to the release by Fortescue of their quarterly production report.

Could you have bought Fortescue before today's announcement and gained from today's big increase. The answer is "Yes" - but it would have been a brave trader to do so.

The signals were four days ago:

1. A break above the Super Trend Line (the stepped line on the price chart).
2. A break above Zero on the Smoothed Repulse line (first pane below the price chart).
3. A break above the Zero line by the MACD Histogram.

Would I have taken these signals? Simply - No. I'd have waited for a break above the long term upper resistance line on the chart which marks the top of the consolidation area.

Entering today on a clear break above that line would, however, have been a no-brainer (if you were watching for it).

There's probably a couple of days more of solid up movement in this. But it means entering tomorrow and hoping this will carry through on the next day. Not for me.

The general market is still too high for me to be entering new trades at this time. Back in early December was my entry point. Not now. But then - I'm a risk averse old investor. Preservation of capital is a first priority for me. I'll leave it to the young guns to carry the risky trades.

Good luck

Red

Market Comments. Tuesday 18/1/2011

The good news is the market was up today +0.8% and recouped all of yesterday's loss plus a little bit. The bull uptrend remains intact.

How convincing was today's action? To my eye - not very.

1. Volume was below average.
2. The best two performing sectors were Health +1.3% and Property Trusts +1.3%. On strong updays I want to see leadership coming from the biggies - the Miners and the Financials.
3. Small Ordinaries, up +0.6%, Fifty Leaders, up +0.9%. On strong up days I want to see Small Ordinaries outperform the Fifty Leaders.

Still - it's hard to knock a day when the market was up +0.8%.

The market is still Overbought with the Daily Stochastic at 87 - the Overbought level is 80. Caution required.

Currently the market has formed an upsloping wedge. This is usually a bearish formation. A break above the top restraining line would, however, be very bullish.

Let's see what tomorrow brings.

I'll put up a couple of event stocks later this evening.

Good luck

Red

Event Stocks. Some Winners. 17/1/2011

This isn't a run-down of he biggest winners - but event stocks which did move up well today.

In this case, both look like they have finished a short term up trend, despite the fact that they did have great up-days.

Woolworths: I've been keeping my eye on Woolworths for a long time, looking for an opportune time to buy. We're close (in my opinion) but not today:

1. Today's candle, despite the strong upday, was a hypodermic syringe
2. Today's action took the stock up to an important horizontal resistance level.
3. Daily Stochastic is Overbought - Caution required.
4. Today's reversal candle took place right at the base line of the previous (and very large) Head and Shoulders pattern.

Future action is unclear. I favour a major move upwards after a small decline. But that is just guess work. Until the chart moves above that important horizontal resistance level, this stock is now in Wait-and-See Mode

Macquarie (up +1.3%): The Stock had a great run up today. But the run might have ended.

1. Another stock with a hypodermic syringe candle. That's bearish if tomorrow's action is down.
2. Daily Stochastic is Overbought.
3. The stock remains in a strong uptrend.

Good support lies in the 37-38.5 area.

I'll be looking for a buy-in around those levels.

Good luck

Red

Event Stocks. Today's Losers. 17/1/2011

Some of the biggest losers today amongst the Top 100 Stocks were: Lynas Corporation

(-3.94%), Qantas (-2.39%), Suncorp (-2.38%), Caltex (-2.06%) and Rio (-1.89%)

I've focussed on three of these: Lynas, Suncorp and Caltex. The last two have been impacted by the Brisbane floods and have been the subject of writings in recent posts. Lynas is a Rare Earths stock and has been the darling of many of the speculative traders in the market.

Lynas: For the medium term, Lynas's run looks like it has ended.

1. Beneath the stepped Super Trend Line
2. Beneath the mid-Oblique Up-Trend Line
3. MACD Histogram below its Zero Line
4. Daily Stochastic headed down with plenty of room before it is Oversold.
5. Smoothed Repulse headed down.

On the plus side, the stock remains within the confines of a strong up-trending channel. The area around 1.50-1.60 might provide support and result in another run-up in Lynas. We shall see.

Caltex: Operations at the Brisbane refinery were halted by heavy rains but the plant was not flood affected. It may have found support.

1. Chart is sitting on the support of the lower trend line of the up-trending channel.
2. Daily Stochastic is reading "Oversold".
3. Candles today and yesterday were both squat dumpy candles. Volume today was average. If this chart was heading lower, I'd expect more "effort" on the part of sellers - bigger candles with higher volume.

On the negative side, if the chart does break below oblique support on increased volume - then I think it will be "Good night Nurse" for quite a while.

Suncorp: Sentiment has been particularly negative because of the Brisbane floods.

1. The big climactic selling day was four days ago (see arrow on chart).
2. I'd expect the low of that day to be tested, if it holds, then Suncorp may have seen the lows for the time being.
3. I wouldn't expect a rebound to higher highs for some time yet.
4. The stock needs to build a base from which to rise.

I'll keep an eye on Suncorp, but I'll be surprised if it becomes a buying proposition in the next two-three weeks. A lot of technical damage has been done to the chart of Suncorp - but the very worst could be behind it. But I would think that punters will need some convincing before they pile into Suncorp in the near future

Good luck

Red

Market Comments. 17/1/2011

The All Ordinaries Index was down -0.7% today. Volume on Mondays is usually lighter than the middle of the week. With a holiday in America tonight, some traders might have been wary to enter positions today. Still, volume was higher today than the previous Monday.

Risk Aversion was the order of the day. Small-Ordinaries (XAO) was down -1.1%, while the 50-Leaders (XFL) was down -0.8%. Advancing Volume to Declining Volume was similarly risk averse with a ratio of 0.8 (below 1.0 is a bearish reading).

Technically, not much damage was done. The MACD Histogram and Smoothed Repulse remain above their mid-lines - that's a positive. The Daily Stochastic is still reading Overbought - Caution required.

Looking at the chart itself - that 3-Day candle stick formation is ugly (a big up-candle, dumpy squat candle, big down-candle). That's a common topping pattern. It has come right at that middle oblique up-trend line. The chart hit that line and has now retreated. Given that the Daily Stochastic is still reading Overbought - it suggests some further falls may occur.

On the Plus side, the chart remains above the stepped Super Trend Line on the Chart.

So - at this stage this is still a minor retracement. More obvious technical damage to Indicators and Trend Lines needs to occur before pessimism sets in.

While the chart remains above the Super Trend Line and within that long-term upsloping channel, the Trend remains UP.

Later on tonight I'll add some information about event stocks.

Cheers

Red

Loser of the Week. Week ended 14/1/2011

Loser of the Week from the Top 100 Australian Stocks was Caltex, CTX, down -5.4%.

This week's slump was caused by damage to the Brisbane Refinery from heavy rain - but the plant was unaffected by the flood.

This will still result in heavy loss of revenue. Reported by the Sydney Morning Herald:

"The financial impact of the unplanned shutdown of the refinery is expected to be in the order of $5 - $10 million (after tax) in 2011,'' Caltex said.

Technically, the pull-back doesn't look serious. The stock has broken below the Super Trend line on the chart but remains within the medium-term uptrend channel.

Friday was a narrow range bar on low volume. Friday and Thursday remained just above the 50-Day Moving Average and the medium term uptrend line of the up-channel.

If this was to be a serious fall, I would have expected Friday's action to have punched through support on heavy volume.

I could be wrong - but this looks like the end of the retracement. An up-day on Monday with increasing volume should be a decider.

As I see it, the biggest risk now to Caltex is general market risk. If the general market falls next week, then we may see Caltex break below the support of the uptrend channel.

Good luck

Red