Inside the market

Index pulling back, buying support remains

The All Ordinaries index spent another week in the red, ending the week down 0.53%. The index ended the week 4.5% above its 200 DMA but continued to back away from the new highs established three weeks ago.

The index retreated below support at 6,425; however, this retreat was moderate and showed a long tail indicating that buying support remains at this level.

Of the 491 stocks currently comprising the index (and for which we collect data), 293 of these (60%) ended the week above their respective 100 DMAs, down from the 63% recorded at the end of last week. Two hundred and nine stocks were up for the week, while 282 ended the week flat or down. Two hundred and thirty-seven shares finished the week within 20% of their 52-week highs, with 65 of those within 5% of 52-week highs.

Utilities and Real Estate were the best performing sectors for the week, while Consumer Staples and Technology were the worst. This was consistent with the broader theme for the week, which was characterised by a rotation back into defensives.

The Real Estate sector managed to pull itself back above support, with the weekly bar registering a long tail showing demand at this level.

The Financials index continued its retracement, however, has so far managed to hold above support at 6,030. It would be bullish for the sector if it can continue to do so. However, for this, we will have to wait and see.

The Consumer Staples index showed a sharp pullback into its resistance area. Consumer Staples is an important sector in the context of the Australian market as it contains several current and former leaders, especially those exposed to the Chinese consumer market including A2M, TWE, CGC, BAL, ING and BKL.

Of these stocks, only A2M has been able to resume its uptrend and make new highs this year. However, the company spent much of last year in a trading range, in which case it might take some time for some of these other names to establish trading ranges and to ultimately resume their uptrends if they are going to do so.

Materials held support during the week, and with the AUD gold price having a stronger week, large capitalisation gold mining stocks were able to rally. It would be bullish for the sector in general if the index were able to hold firm at this support level.

Healthcare was able to hold above its breakout from the previous week despite this week pulling back into the level of prior resistance, now support. This pullback is bullish for the sector, especially if it can continue to hold this level as it shows strong demand for companies in the sector at these price levels.

By Danny Sandler

Founder of Ocean Asset Management.