The All Ordinaries index was up 0.2% for the week, ending 8 March 2019. The index ended the week 3% above its 200 DMA, having stalled around the level of the old highs of October 2018, which is likely to be a point of considerable resistance and it would not be unexpected to see the index spend some time moving sideways around this level.
Any signs of strength above this level would be a positive indication as to the direction of the trend of the overall market.
Of the 473 stocks currently comprising the index (and for which we collect data), 266 of these (56%) ended the week above their respective 100 DMAs, down from 289 (60%) names at the end of last week. Two hundred thirty-six stocks were up for the week, while 237 ended the week flat or down. Two hundred and twenty-eight shares finished the week within 20% of their 52-week highs, with 79 of those within 5% of 52-week highs.
From these statistics, we can see that the trend in some breadth indicators has also weakened for the first time since January this year. The count of the number of stocks above their respective 100 DMAs has been advancing every week since early January. Last week was the first week that there had been a reversal in this number. Similarly, the number of stocks within 5% and 20% of 52-week highs has also stalled.
The week was once again lead by the Real Estate sector, supported by a strong showing by the Consumer Staples, Healthcare and Information Technology sectors.
The important Financial sector was once again weak during the period. Weakness in Financials reemerged almost across the board, however, did not include a number of the large insurers, consumer finance companies and platform provider.
The Real Estate sector is now approaching highs last seen in August 2016, with many of the big names trading within 5% of 52-week highs, includes Goodman (GMG), Dexus (DXS), GPT (GPT), Mirvac (MGR) and Charter Hall (CHC) among others.
The Real Estate sector is still showing average 12-month price appreciation higher than any other sector.
Consumer Staples companies have struggled since August 2018, and although they have recovered from the lows registered on December 24 last year, the index is still trading below its 200 DMA, along with 60% of stocks that comprise the sector.
Looking inside the index reveals a somewhat mixed bag. The Consumer Staples sector provided some of the real leaders of the market advance that took place between early 2016 and late 2018. Companies such as A2 Milk (A2M), Treasury Wine Estates (TWE) Costa Group (CGC) and Freedom Foods (FNP).
A2M is the only one to have advanced to new highs having traded in a range for most of 2018. TWE and FNP are now more than 20% and 30% respectively below their tops and no longer appear to be in an uptrend while CGC is 40% below its high and is showing signs of being in a clear downtrend.
Other stocks in the sector such as Blackmores (BKL) and Bellamy’s (BAL) have failed repeatedly to establish any forward momentum of late and are trading 45% and 55% respectively below their highs.
Woolworths (WOW), the real heavyweight of the sector, has also failed to gain any strong forward momentum since establishing a short term top in mid-2018. The stock still trades more than 20% below its all-time high reached in April 2014.
The Information Technology sector is now trading at all-time highs again and is up 25% since the December 2018 lows. The old leaders in this sector continue to lead the advance. The widely known WAAAX names including, Wisetech (WTC), Altium (ALU), Appen (APX), Afterpay Touch (APT) and Xero (XRO) have continued to show strong performance this calendar year.
The market has also shown support for lesser-known leaders such as Technology One (TNE), Bravura (BVS), Infomedia (IFM) and to a slightly lesser extent Iress (IRE) and Integrated Research (IRE).
Weakness re-emerged this week in the Financial sector. As we’ve discussed here previously, the Banks remain in a tenuous position. It is possible that the drawdown in October-December 2018 provided a stopping action to the downtrends that have been in place since early-mid 2017 in the Bank stocks. However for this to be the case these lows will need to hold, and new trading ranges established before the banking stocks begin to make their recoveries.
If the recent rallies in the Bank stocks fail at points that represent lower short term highs for the respective stocks, this will provide an ominous sign that continuing weakness was underway.
Where are the new leaders?
The Real Estate, Information Technology and Materials groups are the only groups to have recaptured ground lost during the correction that occurred late last year. These groups also, not surprisingly, dominate the lists of stocks showing the highest intermediate-term momentum.
As we discussed above, many of the old leaders, particularly in the Information Technology sector, have driven a large part of the recovery. We are mindful that in order for any new advance to get underway new leaders will need to emerge.
The Consumer Staples sector, which has provided many strong performers over the last few years has so far failed to deliver. We are on the lookout for new leaders emerging. A proliferation of potential new leaders would be a positive sign.
At the same time, we are cautious given the index itself is at a critical juncture. Similarly, we are keeping an eye on essential contributors to the index such as the Banks, who are also at pivotal points.
Further weakness in the banks would not bode well for the overall economy in general and could portent weakness in other cyclical industries, such as Retail or Building and Construction.