Market Update for Fri 9 Feb 2018
XJO dropped almost 40 points at the open but recovered from those losses and closed a meagre 14 points (0.24%) higher. Volume is above the average Daily volume of the last couple of low-volume weeks but below the long-term average of 600 million contracts in the S&P/ASX-200 (XJO). Demand is only able to absorb residual supply after Tuesday’s climatic selloff but unable to attract new demand. The Daily timeframe is in a confirmed downtrend and prices are deeply oversold. Prices unable to bounce away from a deeply oversold condition denotes a weak market. This is poor price action and once again the local market trails most global equity markets. The Chart-of-the-Day is the same Daily chart of the S&P/ASX-200 (XJO) as in yesterday’s report, updated for today’s session. Prices are holding above important 5805 support and remain close to the demand line of the uptrend channel drawn from the February 2016 washout low. Prices failed to break above 5925 resistance. This level needs to be recovered to ease from further downward pressure. After that, the psychologically important round number 6000 will be the next battleground for bulls and bears. Market Condition is in Stage 2. A close in Friday’s session below 5850 would push the Weekly timeframe into a confirmed downtrend, the first since June 2015, and require a further downgrade to a Stage 3.
The NH-NL Index remains negative. Daily NH-NL indices did not move after today’s session, hence underlying strength is currently not building. The huge down spikes in the Daily NH-NL indices give a message for a short-term bottom in prices. This should be supportive for prices and indeed, the selloff is pausing. The Weekly NH-NL index dropped below its zero line Intraweek. However, this level needs to be confirmed by the close on Friday.
The Secondary Market Internals remain negative. The NH-NL Ratio managed to get above its 50% neutral line but remains below its moving average. The down spike gives a message for a short-term bottom in the market. The Volatility Index remains at an elevated level, denoting adverse market sentiment and a risk-off environment.
The Breadth Indicator remains negative. The McClellan Oscillator continues to recover and is challenging its falling tops line (red line). A break above would confirm that a short-term bottom has been made in the price index. The Summation Index continues to retract which denotes that liquidity, the most important fuel to drive prices, is leaving the market. It appears that money is attracted to other alternatives than the Australian equity market.
The Bottom Line. The recovery after Tuesday’s climatic selloff remains meagre. Prices remain in deeply oversold condition, not able to bounce. This is weak performance and the Australian equity market is once again trailing global markets. Market Internals remain negative. Most indicators gave a message for a short-term bottom in the market. This is supportive for prices. 5805 support is holding but prices fail to recover 5925 resistance. The next level of resistance is 6000. Trading Mode remains Protective.