Initial Comments, 2/2/2010

Looking at the Advance/Decline Ratio, today's action seems to have broken the back of the recent sharp decline.

The A/D Ratio never quite got down to the levels seen at the end of October 09 or late June 09.

Today's action saw the ratio rise from a very low level almost to the top of the mid-range - and has clearly broken the set of lower highs that the A/D Ratio was forming.

Still - it is only one day but it does look promising.

Market Comments, Tues, 22/12/09

The market (XAO) had a strong move up today, +1.4%. We're now into the holiday period and volume has lightened off. Today was about half the 50-Day Average. Such light volume allows for greater volatility which we saw today.

The Advance/Decline Ratio was reasonable without being spectacular, 1.4/1. But UpVol/DownVol was a bearish 0.76/1. A bit odd. It's rare for the UpVol/DownVol to record a bearish number on such a strong day.

Just to add to the oddity, Small Ordinaries was up only 0.9%, while the 50 Leaders was up 1.5%. Again, strange to find risk aversion dominating on such a strong day.

I've been concerned that the Ozzie Dollar has had a trend change from up to down - but the market hasn't followed suit.

It would be normal now for the Ozzie, after a big drop like its had, to have something of a reaction rally up - and take the XAO up with it. So the XAO could break out to the upside if that happens.

I've been looking for evidence that the currency drop is having an effect. And I've found it in, at least, the Health Care Sector (see chart above). Health Care, dominated by CSL, Resmed and Sonic Health Care, is highly dependent on overseas earnings. So when the Ozzie drops, that improves returns to these companies when they repatriate earnings back to Australia.

We can see in the chart above that the Health Care/XAO Ratio has poked above the 65-Day Moving Average. The only time in this bull rally from March that it has been able to move significantly above the 65-Day MA was back in June/July when the general market was retreating. That is what would be expected. At that time the Ozzie Dollar was also in retreat. The market and the Ozzie were correlated. In such a case, Health Care has a negative correlation to the Ozzie, so that sector moved up in a counter trend move, while the market moved down.

Now, we have Health Care, as expected, moving up while the Ozzie moves down. Again - negatively correlated. But the general market hasn't acted as expected. Perhaps I'm wanting the relationship to be too close and it will happen. Or perhaps something else is operating that I'm not aware of.

Anyway - it would pay to be careful - and take advantage of an upside break-out if it occurs.

Somehow, I think in the medium term, the past relationships will assert themselves. Fundamentally, if the Ozzie is falling, money is being drawn out of Australia. This hurts liquidity and the volume of money available for investing in the stock market. So we should expect the market to fall with the fall in the Ozzie. Perhaps we should be patient and see how it pans out.

Putting it all together, the market was up strongly today - but, perversely, risk aversion was obvious. The Ozzie Dollar is weak which should affect the market adversely. So, I think the risks still lie to the downside rather than the upside.

Quick Comments, Monday, 14/12/09

First, from Quantifiable Edge, This week is options expiration. Over the last 25 years December options expiration week has been the most consistently positive week of the year for the SPX. . . . The bullish tendencies over the last 25 years have been exceptionally strong. . . . not only do you have strong indications that this upcoming week carries an upside edge, but also out as far as 3 weeks.

Today saw a big spike on the Australian market which started at about 3.20 and took the XAO up over 39 points from being down -22.6 points to being up +16.8 points. Extraordinary.

Most people put this jump down to a bail-out by Abu Dhabi of Dubai World.

American futures are currently up about 90 points.

OK - that's all the exciting stuff.

Let's get down to some figures.

Today was a low volume day, less than one billion shares traded, while the 50-Day Average is about 1.34 Billion. (And the 50 Day Average has been steadily dropping since August.) So, there's not a lot of conviction there.

The sector/sub-sector to benefit from action today based on volume was XXJ (Financials less Property Trusts) with a volume today 1.2 times its 20-Day Average. Despite this, XXJ ended flat on the day, up just 1.2 points at 5349.6. But from the low of the day to the close, the index jumped +1.26%. Quite a reversal.

The Advance/Decline Ratio today was bearish at 0.89.

The Small Ordinaries and 50 Leaders were level pegging, both up +0.4% in line with the XAO, up +0.4%

The Defensive Sectors were the best performers today: Consumer Staples +1.4%, Telecommunication +0.9%, Utilities +0.8%, and Health +0.6%. Health was equalled by Materials and Industrials; but generally the Defensives had the better of the day.

On balance of all those factors, despite the spike high late in the day, the general tone of the final results favour a bearish outlook.

Tomorrow may depend largely on whether the spike high on the Aussie market and the American futures is just an over-reaction to the Dubai events, or the start of something bigger. If American can sustain that burst during tonight's trading, then our market is probably a good medium term bet. We shall see.

I'll have some further comments later tonight when I do some more analysis.