Data Diary

ASX200 sector relative performance – financials on the nose

Posted on 19 November 2009

Scalpel? Tweezers? Face mask on?  Maybe a little eucalyptus oil on your upper lip too…

It’s not been a great sign of strength for the global equity markets that indexes like the All Ordinaries, Canada’s TSE and the Russell have not joined the S&P at new highs.  Well let’s see what is happening in the bowels of the Australian market to see how this has come about.

First up, the strongest index in the Australian market – XMJ – the materials where the miners reside:

Nothing but uptrend here.  It has just pushed through a 50% retracement of its entire downdraft.  No signs of weakness here.  If the All Ords was just miners we would indeed be at new highs for the year.

So what the hell is happening with energy (XEJ) then?

It topped nigh on 6 weeks ago.  The MACD has crossed over, volume is spiking higher on down days/weeks.  This index is not the picture of health.  But maybe that is sector specific – plenty of analysts have been downgrading their oil price forecasts recently as they ratchet back demand assumptions while increasing inventories.

On the other hand, the small caps are not looking to flash either (XSO):

At least it has tried to retake its highs.  But a failure at the recent highs with the MACD also spilling over has this index on the tightrope without one of those long poles (any tightrope walkers out there know the technical name for it?).  It is one index that needs to break higher soon – it surely won’t recover so quickly from a second breakdown through its uptrend.

Of most concern are the financials (XXJ):

This index also peaked 6 weeks ago.  Given it is a heavyweight in the XJO – it is the primary reason for our market failing to push to new highs.  Note the MACD has crossed over, momentum has broken to new lows, and volume has been heavy into the weakness.

Conclusion:

If broader market weakness sets in, it’ll be lead by a breakdown in the financials, but will need materials and energy to follow suit.  In the absence of a catalyst, hard to imagine that the market will simply collapse under its own weight.  But I guess stranger things have happened.