September 26

Market Update for Tue 27 Sep 2016

Quiet week ahead in terms of major data releases.

chart-of-the-dayXJO dropped at the open after the oil price fell by around 4% and equity markets were weaker in both Europe and the USA on Friday. The low of the day was made within the first 15 minutes into the session. The initial selloff found support smack at the mid-point of Friday’s wide range up and from where prices slowly recovered all the gains. The close is one tenth of a point higher than Friday’s. Volume was below-average. Holding action, a pause after a 160 point up move last week is nothing unusual and allowed prices to relieve from a short-term overbought condition. Even an exhale from the current level would not be threatening for as long as the price index can hold above the 5380 level. The 5425 level is an important level being the 61.8% Fibonacci retracement between the 2007 top and 2009 bottom, the May 2016 top as well as the 61.8% Fibonacci retracement from the August/September 2016 pullback. This level remains resistance which still needs to fail convincingly with a sustainable break above. The Chart-of-the-Day shows an Intraday chart of the S&P/ASX-200 (XJO). An inverse uptrend channel formed last week. We reported at the time. The upward progress accelerated over the course of the last week and prices broke above the inverse uptrend channel without ever looking back. As a result a new, much steeper uptrend channel formed which is currently the main feature. Prices touched the supply line of the uptrend channel from where they are currently pulling back. A failure at the current 5425 level would likely cause a break below the demand line for prices to exhale. A drop below the 38.2% Fibonacci retracement would turn the Daily uptrend to a confirmed downtrend and turn the otherwise neutral technical picture to negative again. Therefore, for the uptrend to resume prices need to stay above the mid-point of the August/September 2016 decline at 5385 and break convincingly above the 5425 level. Guard from an upthrust, that is a rally above the 5425 level tomorrow which fails and closes below the 5425 level. This false break at the current resistance level would denote bearish price action for more weakness likely to follow. Market Condition remains in a Stage 3.

The NH-NL Index remains neutral with all indices in their neutral zone with the exception of the long-term 12-Month NH-NL index which is in its bullish territory. The Weekly NH-NL index remains fairly flat above its zero line. Daily NH-NL indices remain at low level compared to the strong up move in the price index. This is a potential sign of underlying weakness or prices being a bit ahead of themselves. This condition will have to be resolved one way or the other, either by strength returning to the NH-NL Index or prices to correct. On a positive note New Highs expanded above their bullish threshold while New Lows contracted below their bearish threshold. New Highs will continuing to expand on positive price action which in turn will strengthening the NH-NL Index further.


The Secondary Market Internals start showing signs for strength. We discussed that prices going up while the NH-NL Ratio is falling is not a condition which can last and both have to get in sync with one another. They are in sync again with the NH-NL Ratio bouncing into a healthy level of an above-80% reading. This causes the NH-NL Ratio moving average to tick up after it went fairly flat over the last couple of sessions. The brief selloff at the open brought some volatility back for the Volatility Index to tick up. However, the Volatility Index remains at low levels denoting complacency in the market.


The Breadth Indicator remains positive with the McClellan Oscillator remaining above its zero line. By definition this causes the Summation Index to rise. More securities declining than advancing in today’s session produced a down-tick in the oscillator. This is not threatening for as long as the oscillator can remain above its zero line. Almost 260 more declining than advancing securities are required to bring the oscillator back to its zero line which would require a few good down days.


The Bottom Line. Holding action on below-average volume is nothing threatening after last weeks accelerating up move. In fact it allowed prices to relieve from a short-term overbought condition. Resistance at 5425 still needs to fail more convincingly while support at 5380 needs to hold going forward. Market Internals remain positive with strength now is returning to the NH-NL Index. Trading Mode remains Aggressive.