February 22

Market Update for Fri 23 Feb 2018

XJO bounced 30+ points at the open. Supply overcame and pulled prices right back to the opening range and then below. Prices found support at the 5925 level, a level we identified as resistance in the climatic selloff early February 2018. The 5925 level is part of a Fibonacci structure we introduced in our last weekend post. This previous resistance level is now becoming support and prices should hold above to keep the door open for further gains. However, prices remain in an area of overhead resistance. Prices are trying to get above previous short-term resistance at 5945 and found resistance at 5965, another Fibonacci level. Volume was high but the reward remains feeble with a gain of only 7.2 points by the time of the close. The close is smack in the middle of today’s range, denoting indecisiveness. Today’s close is the fourth close within a small range, further underlying the indecisiveness of the market. Prices sit smack on the moving average. The Chart-of-the-Day is the familiar Intraday chart of the S&P/ASX-200 (XJO). Prices now dropped out of the initial uptrend channel. We annotated the previous uptrend channel with thin blue lines. A new, flatter, uptrend channel (thick blue lines) can be drawn and incorporates the previous three price bottoms. Prices are holding inside this channel. The yellow uptrend line drawn across the previous price tops shows how tiring the bounce has become. Prices recovered a bit less than half in the past two weeks since the selloff. This is a slow grind up. Going forward we need to see prices holding above 5925 support and breaking 5965 resistance. A Daily close above the psychologically important round number 6000 would improve the otherwise negative technical picture. Breaking and holding below 5945 would leave today’s price action as an upthrust for weakness to resume. Market Condition remains in Stage 3.

The NH-NL Index remains neutral. Daily NH-NL indices improved after the bounce in prices at the open. This bounce expanded New Highs and contracted New Lows further. The 52-Week NH-NL index remains positive. The Weekly NH-NL index is derived from the 52-Week NH-NL index and its strength helps to cross back above the zero line. However, this positive message for the market has to confirm on tomorrows close for the week.

The Secondary Market Internals remain positive. The NH-NL Ratio is well above its 50% neutral line and its moving average is rising. Volatility continues to fall and reached now the lower band. The absolute level of the Volatility Index remains above the level of the past few months. Secondary Market Internals are good to give confirmation signals. With no clear trend and Primary Market Internals neutral, the Secondary Market Internals don’t portray a message for now. They might have gotten a bit ahead of themselves and Primary Market Internals improving would be further validated by positive Secondary Market Internals.

The Breadth Indicator remains neutral. The McClellan Oscillator remains flat at its zero line. This keeps the Summation Index flat. Both are at neutral levels, currently not giving a clue of the future direction of prices.

The Bottom Line. Prices are grinding up slowly while volume remains high. There is a lot of selling and buying with no force having the upper hand for now. Once all the buying (or all the selling) is absorbed, prices can start trending again. With Market Internals at neutral levels, a feathers weight can tip the scales to either side. Expect more lateral movement before a clear trend emerges. Going forward we need to see prices holding above 5925 support and breaking out of the current area of overhead resistance between 5945/65. Only a close above the psychologically important round number 6000 would improve the otherwise negative technical picture. Trading Mode is on the brink to be upgraded to Conservative but for now, Trading Mode remains Protective.