Stockmarket monthly gains

Here are two interesting charts showing how stockmarkets have performed historically during each month of the year. One chart shows the average monthly gain for the Dow for the past 60 years and the other represents the monthly performance of the All Ordinaries for the past 30 years. They show similar results but with some differences. What they have in common is that April is the best month for the markets followed by July and December. September is the worst month for the Dow while October is the worst month for the All Ords. February and June are negative months for both markets.

All Ords turns down

Here's today's chart showing that the All Ords has turned negative. This is not a good sign for the market. It's little like a theme park roller coaster that has gone up and over the hill and has now started the journey down. What we don't know, is whether this will be a long decline or a short one, whether it will be steep and fast or gradual and slow or a bit of both. Whichever it turns out to be, one thing is now clear, the direction will be down. By the way, the Dow also turned red last night.

XAO update

The XAO Indicator will turn red if the All Ords crosses below 4405 on an intraday basis. The Dow will turn red if it goes lower than Friday's low of 10216.

There's a bear in the woods

   "There's a bear in the woods" was the opening line of a TV ad for Ronald Reagan's 1984 presidential campaign. The commercial featured a bear wandering through a forest accompanied by narration suggesting that the bear could be tame or dangerous and that it would be wise to be prepared for the latter. http://www.wikio.co.uk/video/ronald-reagan-tv-ad-bear-105484 Reagan's ad has been interpreted to mean different things, but to me the bear was a clear allusion to the USSR and the Cold War.

   Anyhow, whatever its original purpose, I think it is the perfect metaphor for the current state of the stock market. The following chart illustrates that there is definitely a bear in the market. It could be tame or dangerous and it would be wise to be prepared for the latter.

This chart shows the All Ords for the past 3 years (click to enlarge). You will see that the rally from the March 09 low retraced about 50% of the previous move down. I have seen the 50% retracement level stop rallies in major bear markets before and now I am concerned it has done it again.  Keep your eye on 4360. If the market falls below that point this week, the bear will turn dangerous and he will probably have a few dangerous mates with him.

When is a correction a correction?

A comment to the August 9 post asks why I called the past 3 months of red bars a 'correction'. Was it not just a fall in the market? Well, to paraphrase Julia Gillard: 'That's a good question. I'm glad you asked.' The short answer is that the use of the word 'correction' is just a personal choice. Admittedly, it implies the market will resume the upward move. (Whether that's reasonable remains to be seen.)

The chart to the left shows the rally from a low of about 3100 in March 09 to a high of about 5050 in April 10 - a move of 1950 points. The decline since April was about 800 points - a decline of about 38% of the previous rally. The 38% level is a significant support level. If the bars stay blue and the market moves above the April high, then the past 3 months of red bars will be considered a short term set-back to a longer term up move - a true correction.

But there is another way to look at this. The next chart is also significant. This chart shows the move down from the October 07 high to the March 09 low - 6800 to 3100. That's a move of 3700 points. It could also be said that the recent rally (March 09 to April 10) wais just a 'correction' of the previous down move. And more significantly, that 'correction' was almost exactly 50% of the previous down move. If the rally was the correction, then the past 3 months of red bars could just be the start of the resumption of the down move.

'Uh-oh' says Terry McCrann

'Uh-oh'. They were the opening words in yesterday's article in the Herald Sun by one of the country's most respected economic journalists. The words summed up his reaction to the news from the US that a 'double-dip' recession is back on the cards. That news explains the hesitation last week by the All Ords to follow the Dow and the Shanghai Index in turning blue. It seems that rather than lagging those two indexes, our market was trying to tell us to be wary.

The 4550-4650 level is proving difficult to get through and that level it seems has somewhat of a history.

In Sept and Nov 05 it acted as resistance holding back a rising market. In Sept 08 it provided temporary support to a very weak market. In Nov 09 and Feb 10 it provided support again. And this year it has acted as resistance three times so far in May, June and August. 

Now the thing is that the XAO Indicator will turn red again very quickly if the All Ords drops below 4360 (refer to chart on left - click chart to enlarge). That is only 62 points from today's close of 4322.

The last time the XAO Indicator went from blue to red in quick time was in September 2008. That time we had only 5 blue days. That was followed by 4 months of red bars and a fall in the All Ords of over 1700 points or 35%. Now I am not suggesting that is about to happen again. But here's the value of the XAO Indicator. When the bars are red it is a time for caution - sometimes when the bars are red the market can fall dramatically. Will keep you posted.

All Ords now in uptrend

The 3-month correction in the Australian sharemarket is now 'unofficially' over.

The XAO Indicator today turned blue. Statistically (measured over the past 30 years of data), 67% of the times that the indicator turns blue the next red bar will have a higher close that the close of first blue bar. Today's closing level on the All Ordinaries Index was 4,615.60. There is a 67% probability that the next red bar will be higher than 4,615.60. By the way, the XAO Indicator will turn red if it makes an intra-day low below 4,360. That is a dynamic level - it will change with time and will rise with the market rising.

Is the All Ords at a cross-road?

The June 22 post shows the All Ords on the verge of turning blue but facing stiff resistance between 4550 and 4650. The market couldn't punch through and then fell more than 400 points. Now we're here again - in the same resistance zone and tantalisingly close to turning blue. Will the market break through or will it flop like it did in June?

Here's a possible clue. The chart to the left is the DOW for Friday August 5. On that day the US market got some bad economic news. The DOW promptly fell 160 points but later recovered to be down just 21 points at the close. That looks bullish to me.

Here's another clue. The chart to the left is Giralia (GIR). I first mentioned GIR in the July 23 post. I regard GIR as a leading indicator - especially for resource stocks. On that day it turned blue and was looking bullish. It promptly rallied and then took a breather. On Friday in a flat market, GIR jumped out of a small consolidation zone. GIR looks like it is heading to at least $2.85 and maybe $3.20. If it does that the All Ords will test 5,000. But before you rush out and buy stocks, remember there's an awful lot of resistance for the All Ords to get through.

All Ords update

If the All Ords (XAO) takes out the high made on 3 August (4,597.50) the XAO Indicator will turn blue.

DOW turns up - All Ords hesitates

The Dow has followed the Chinese market and turned blue. If the All Ords makes a new high on Wednesday it too will turn blue. A comparison of the reliability of the XAO Indicator between the three markets shows that the indicator is most reliable on the All Ords. I will let you know when turns blue.




Click chart to enlarge