Market Update for Fri 1 Mar 2018
XJO pulled back from 6090 resistance and therefore respects a downtrend line which can be drawn across the early January 2018 and early February 2018 price tops. Supply was evident in Tuesday’s session and Wednesday’s break of Monday’s close was the confirmation that an upthrust has occurred. As a result, prices sold off in Thursday’s session and broke the psychologically important round number 6000 level. The Chart-of-the-Day shows the familiar Intraday chart of the S&P/ASX-200 (XJO). The throw-over above the supply line of the uptrend channel was an exhaustion of demand which resulted in the subsequent pullback. Prices broke below the demand line of the uptrend channel which denotes stopping action. This suggests that prices need to build a new cause (e.g. absorption of supply before going higher again). At best, expect more lateral movement going forward. Prices may find temporary support in the area between 5945 and 5965 but only a recovery of resistance at 6030 would ease form further downward pressure. The area of support at 5945/65 denotes the mid-point of the bounce from the 5800 level. Giving up this level would lead to more weakness and a possible re-test of the February 2018 price bottoms. The month of February closed strong near the high of the month. However, the close remains below December 2017 and January 2018 closes. A clear break below the area of support at 5945/65 followed by a quick recovery would produce a buy signal for the price index. We don’t know if this is going to happen. If so, then we expect a new price top to follow. However, more and more it looks like that a major price top is in the making, something we keep reporting since November 2017. Market Conditions remain in Stage 3 with the Weekly timeframe in a confirmed downtrend.
The NH-NL Index is negative. All Daily NH-NL indices are below their zero line and at the lower end of their neutral zone. The Weekly NH-NL index is holding its position above its zero line, although this level has to be confirmed on the close tomorrow. It requires a positive 52-Week NH-NL index to keep the Weekly NH-NL index above water. With 52-Week New Highs contracting and 52-Week New Lows expanding, it requires positive price action and new price tops to reverse this trend.
The Secondary Market Internals are neutral. The NH-NL Ratio is back at its 50% neutral line and its moving average continues to rise. The Volatility Index remains at its lower band which is at a higher absolute level than in the previous months. The concept of risk is back in the market, although the down moves in prices in the previous two sessions hardly made a dent in the Volatility Index.
The Breadth Indicator is neutral. The McClellan Oscillator remained mainly in negative territory since the beginning of the year and didn’t spend much time in positive territory towards the end of February 2018. This is not a sign that bulls are in control, it is rather a sign of weak bears. The Summation Index is flat and hovering only a little above its +600 neutral line. This is a message that liquidity, the main driver of prices, is currently not plentiful.
The Bottom Line. Prices are pulling back from a downtrend line drawn across the January and February 2018 price tops and from 6090 resistance. Prices are at a danger point for a breakdown. Giving up an area of support between 5945/65 would likely invite more supply for a possible re-test of the February 2018 price bottoms. Support holding and a break above 6030 would have the potential which leads to a new price top. Market Internals are neutral to negative. The optimistic view is that they have ways to go before they become extended and overbought. The negative view is that they have ways to go before they become oversold. Trading Mode is downgraded to Conservative due to primary market internal indicators turning negative. A further downgrade to Protective is required on a close below 5925.