October 21

Market Update for Mon 24 Oct 2016

The European Central Bank (ECB) decided to leave quantitative easing (QE) and policy rates unchanged and rumors that the ECB will start to taper its QE program have not been confirmed. The ECB left rates on hold, i.e. the main refinancing rate remains at zero, the deposit rate at –0.4% and asset purchases at EURb80 a month.

chart-of-the-day-iichart-of-the-dayXJO dropped at the open and bears had all the opportunity to pull prices lower. Bulls were able to defend the selling for the price index to almost recover from all opening losses. Volume was average and the close at the mid-point of the narrow daily range. Supply and demand remain in equilibrium with either side having the upper hand. Four out of five weekly closes were at the 5435 level (+/- 5 points). This level is the key pivotal level of the September/October 2016 trading range between 5380 and 5495. The price index is holding above important support levels (5380) but fails to make upward progress. Today we show two Charts-of-the-Day. The first chart shows a Weekly chart of the S&P/ASX-200 (XJO). We discussed the downtrend channel (2) from the 2015 top and the new uptrend channel (3) from the February 2016 washout low in earlier reports. The supply line (2) and demand line (3) form an apex on the Weekly time frame. This apex will be resolved one way or another by mid-January 2017. The 5350 level is an important level to hold going forward. It is the mid-point of the weekly bounce from the July 2016 and September 2016 bottom (yellow arrows). Furthermore, the 5350 is the 50% Fibonacci retracement from the 2015 top to the February 2016 bottom and coincides with the supply line of the uptrend channel (3). For as long as this level can hold a resuming of the uptrend can’t be ruled out. The second Chart-of-the-Day shows an Intraday chart of the price index. A similar apex formed over the past week with prices coiling. The close at the mid-point of the day, mid-range of the trading range, within in short- and long-term apexes and either side domineering doesn’t allow for a conclusive assessment of further price action. Market Condition remain in a Stage 3.

The NH-NL Index remains neutral. Shorter term Daily NH-NL indices recovered from a drop at the beginning of the week but its general slope remains down. The longer-term NH-NL indices remain flat, echoing price action. New Highs and New Lows remain around their bullish and bearish threshold with either side having the upper hand.


The Secondary Market Internals remain mixed. The NH-NL Ratio remains above its 50% neutral line but its moving average continues to fall. The NH-NL Ratio challenges its moving average again which leaves this pair of indicators in the neutral camp. The Volatility Index remains flat and even dropped towards its flat lower band. This is usually a condition seen at market tops.


The Breadth Indicator recovered its zero line yesterday and turned positive. More declining than advancing securities were recorded in today’s session which pulls the McClellan Oscillator back to its zero line. A positive message for the market remains for as long as the McClellan Oscillator is able to remain above the zero line. A rejection at the zero line is called a simple structure which is a bearish signal. We don’t have this signal right now and a reading of 0.36 is so close to the zero line that the Summation Index remains flat. No signal is currently given by this indicator.


The Bottom Line. Supply and demand remain in equilibrium with neither side having the upper hand. This keeps price action rather trendless, confined within a narrow trading range. So far the price index is holding important support levels but failing to produce upward progress. Watch 5380 to hold and 5495 to fail. All Market Internals remain neutral, further complicating a market assessment. No wonder Trading Mode remains uninspiringly Conservative.