The Weekly Wrap

Market Update

ASX 200 Index (XJO)

On Thursday we hosted our first members evening of the year at the Colmslie Hotel, with guest speaker Chris Weston Head of Research at Pepperstone delivering an informative view of the current global and local markets. Those in attendance will agree it was a great success, with plenty to digest and contemplate in the months ahead. In keeping with the event, we thought it worthwhile to reiterate aspects of Jason’s presentation on the XJO. The first chart below highlights how the XJO index has been stuck in a channel, tracking sideways over the past 4-5 months.

Given markets tend to repeat past behaviors, the last time we traded sideways for an extended period was between June and November last year. That pattern was broken with the election of a new President in America, yet the rally has been sideways since December.

On the 8th of March, the Option Prophet alerted clients to the possibility of a fall in the XJO and a trade idea was generated. The Bought Put trade did see a successful outcome, but a deeper analysis of the XJO shows us that there is a marked divergence between the index and technical indicators.

Options Prophet Trade Idea – 8th of March 2021

To read more about the XJO Put Trade Idea, please click here.

The MACD on a weekly chart has just turned negative for the first time since may last year. We can see the daily chart tells us that the Commodity Channel Index has been declining since mid-February.

Finally, if you were not aware that the Bourse Analyser does not display the Accumulation or Distribution alerts, you can substitute the GEAR ETF. The chart below shows that the GEAR ETF has registered Distribution alerts on a daily and weekly basis.

There is divergence on the GEAR ETF as well, with the declines in CCI and MACD diverging from the underlying XJO. The outlook for the XJO index appears uncertain.

American Market Update

We have been mentioning that when a market is in its topping process, the matter is not as simple as a quick reversal in prices. We need to look a bit deeper in the market actions and try to determine if in fact, the bull run is over, for now.

The speculation that has been the dominant theme of the American market appears to be ending. Total Call Option volume, which has been a highlight of the retail traders, peaked on January 29th this year, has fallen 35% since then.

The crypto currency market, led by Bitcoin, peaked on the 13th of march and has been falling alongside the secondary crypto currencies. Bitcoin is down 14% in just 2 weeks.

Another sign of exhaustion is in the Russell 2000 index, which peaked on the 15th of March and is down 10% in just over a week. The Special Purpose Acquisition Companies, known as SPAC’s, have experienced a recent rush of news and new listings, are all mostly trading below their US$10 listing price. This is fascinating as the companies have no assets, just cash, yet the market is now discounting them.

We mentioned during the week that the High Yield Corporate Bond index (Junk Bonds), peaked on February 12 and have just moved below a 10 month trend line. Tesla, which is seen as the darling of the new retail investors, peaked on January 25 and are now 30% below this level.

The speed of the contractions in these markets indicates that the character of the market is changing. Cumulatively, these measures are showing a decline in the desire to speculate.

The chart below reflects the bullishness of the NASDAQ index compared to the Dow Jones Industrial Index. It appears that the NASDAQ led the market higher in the past 12 months at breakneck speed and is now leading the contraction.