XJO continues to make upward progress. There was some supply right at the open and prices briefly dropped below the 5900 round number and below Friday’s close. This selling didn’t attract any further supply but exhausted for demand to overcome and prices not only recovering but moving up for the remaining session. The close near the high of the day on good volume is healthy and the low of the day was below Friday’s low and the high of the day was above Friday’s high (outside reversal bar) is positive. The Chart-of-the-Day shows an Intraday chart of the S&P/ASX-200 (XJO). We plotted the same Fibonacci structure we already showed in our weekend report. Prices are facing overhead resistance in the area between 5925 and 6000. Support levels are holding, most notably 5800 support which corresponds with the demand line of the uptrend channel from the February 2016 washout low. The larger uptrend remains intact for as long as those levels can hold. Prices started a new short-term uptrend channel from the 5800 support and short-term support at 5840 and 5890 (both not shown) is holding. The door remains open for further gains in prices for as long as the uptrend channel can hold and resistance levels fail. The price index is at a short-term resistance level at 5945 (not shown). This is the level at which a counter move after the climatic selloff two weeks ago came to a stop. A renewed failure at this level and a rejection of 5925 resistance would bring doubts over the prospect of a continuation of the bounce and a trading range between 5800 and 5940 is the most likely outcome going forward. Daily and Weekly time frames are in a confirmed downtrend. Prices recovered back to their means which is a logical level for weakness to resume. Only a close back above the psychologically important round number 6000 would turn the Daily timeframe back into a confirmed uptrend. Market Condition remains in Stage 3.
The NH-NL Index continues to recover and is neutral now. Daily NH-NL indices are in their neutral zone almost touching their zero line. The large down spikes suggest that an important price low has been made and a small positive divergence after the re-test of the climatic selloff is playing out in prices bouncing. A cross above the zero line in the 1-Month NH-NL index triggers a Bounce Signal. This is a late stage for the signal to trigger which brings up questions about its ability to portray a message for a strong bounce to materialize. The Weekly NH-NL index is below its zero line. This is not usually a condition for conducive markets.
The Secondary Market Internals are positive. The NH-NL Ratio popped above its 50% neutral line. This gives a message for conducive markets. This message is confirmed by the NH-NL Ratio moving average turning to up from down. Conducive markets exist when this moving average is rising. The Volatility Index continued to ease, though its absolute level remains well above previous readings.
The Breadth Indicator is positive. The McClellan Oscillator, for the first time since mid-January 2018, turned positive. This gives a positive message for the markets. The Summation Index is turning at its +600 neutral line. A drop below this line would indicate a squeeze in liquidity for weakness to remain. But this is not the condition we are seeing right now.
The Bottom Line. Support levels are holding while prices reached overhead resistance levels. We want to see prices holding above 5925 support to ease from downward pressure. A rejection of current levels would be weak and most likely lead to a trading range between 5800 and 5940 going forward. Market Internals recovered and most are turning positive now. A rejection of current levels in market internal indicators would flag negative messages for weakness in prices likely to resume. Trading Mode remains Protective. An upgrade to Conservative on Market Internals turning positive is imminent. A further upgrade to Aggressive requires a Daily close above the psychologically important and familiar round number 6000.