February 26

Market Update for Tue 27 Feb 2018

XJO followed-through after Friday’s up move and break above previous resistance at 5945. The range is less than on Friday and so is volume. But there is still good reward for the effort and the close at the high of the day is strong and denotes a lack of supply. The Chart-of-the-Day shows the familiar Intraday chart of the S&P/ASX-200 (XJO). Prices reached the supply line of the uptrend channel. A pullback would be nothing out of the ordinary after the recent up moves. A shallow pullback should hold above 6000 support. Prices are approaching short-term resistance at 6065 and at the previous level of resistance at 6090. This level coincides with a downtrend line drawn across the two most recent price tops early January 2018 and early February 2018 (not shown). Reaching and rejecting this downtrend line early March 2018 would not only be timely but also bring doubts over the prospect of a new price top anytime soon. The close above 6000 puts the Daily timeframe back into a confirmed uptrend. The Weekly time frame remains in a confirmed downtrend. A Weekly close above 6065 would also turn the Weekly timeframe in a confirmed uptrend. We might see this to happen either this week or next week. Until such time, Market Conditions remain in Stage 3.

The NH-NL Index remains positive. All Daily NH-NL indices are in their bullish territory and the Weekly NH-NL index is well above it zero line. While the Daily NH-NL indices are not as strong as in the last quarter of the calendar year 2017, they still have a lot of room to grow before they become extended. We expressed our concerns about Market Internals currently not leading but following price in our weekend report. Indeed, a new price top would most likely produce lower tops in the NH-NL Index and therefore produce negative divergences again. The price advance slowing down or even pulling back would allow the NH-NL Index to catch up and take the lead. In our view that would be the much more convincing setup for a continuation of the long-term uptrend in prices than a rapid advance built on sand.

The Secondary Market Internals remain positive. The NH-NL Ratio remains well above its 50% neutral line and its moving average is rising. The Volatility Index reached its lower band where it seems to level out. The absolute level of the Volatility Index remains above the levels of the previous months which is a good thing. As the low-volatility period between July and October 2017 shows, some form of volatility is desirable for prices to trend. Secondary Market Internals are positive and therefore confirm strength in the other market internal indicators.

The Breadth Indicator remains positive. The McClellan Oscillator is making further progress above its zero line. A positive oscillator, by definition, helps the Summation Index to rise. The oscillator reached a falling tops line drawn across the previous oscillator tops. A rejection at this level would be a first warning sign for ending action in prices. This is not the situation we are currently in but only a few more declining than advancing securities would cause the oscillator to pull back.

The Bottom Line. Positive price action continues with support levels holding and resistance levels breaking. This is the most simplistic characteristic for an uptrend and indeed, the Daily timeframe entered a confirmed uptrend again. The next level of resistance can be found at 6065 and then 6090. Market Internals are positive, portraying underlying strength in the market. However, their levels remain below the levels in the last quarter of the calendar year 2017. We also raised concerns in our weekend report that Market Internals are currently not leading but following price. A pullback after the recent advance in prices would not come as a surprise but in fact be healthy. It would allow Market Internals to take the lead and therefore giving better evidence for a new price top. Any pullback should hold above the 6000 level. Trading Mode is upgraded to Aggressive on the Daily timeframe in a confirmed uptrend and Market Internals being positive.

Due to intercontinental travels, we won’t be able to publish reports in the next two days. We expect that our next Market Report will be for Friday 2 Mar 2018, prepared after the close of trade on Thursday 1 March 2018. Thank you for your understanding and continuous support.

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Posted 26/02/2018 by Notes on ASX in category Daily Market Update