Telstra is Australia's largest listed Telco and has been a favorite stock to own among retail investors due to its high dividends. However its popularity has been tested over the last 12 months as the share price has gone from bad to terrible, falling from a high of $5.85 as recently as July last year to new multi year low of $4.00. 

Up until October 2015 Telstra's share price had been enjoying a multi year bullish uptrend rally. However after breaking its long term uptrend In October & November 2015, the share price experienced a steady decline lower over the last 18 months.

Why Has Telstra Recently Crashed?

Telstra has a number of challenges that it faces over the next few years as a number of earnings drivers will be drying up quite dramatically over the next 3 - 5 years. This is leading to Telstra having to find new earnings growth drivers to replace existing declining earnings streams. So far though the market is not convinced as the share price is in a long term downtrend (See article below on losing earnings drivers)

In addition to the medium to long term challenges faced by Telstra, TPG Telecom announced last week that it is buying mobile spectrum and will begin to builds its own mobile network instead of being a re seller. (See announcement below)

This announcement which was released on the 12th of April spooked Telstra investors as they dumped the stock on the day, followed with more selling over the next few trading days falling to a new multi year low of $4.00 a share.

With a few trading days left in the month of April Telstra is set to break a key long term support level of $4.50 which could lead to even lower prices over the medium to long term.

Telstra Chart Review

Monthly Chart

Telstra's monthly chart  is not providing much positive news for its shareholders as the monthly chart is set to break another key long term support level of $4.50. (As shown on the chart with the 2 circled areas) If this is to occur the most likely direction over the medium term is towards its next support level of $3.85.

Momentum Indicators Confirm Bearish View

The monthly chart momentum indicator has been in the negative since late 2015 when the share price closed below its long term uptrend. Currently its heading lower again after making an attempt over the last 12 months to move back into the positive. The Slow stochastic shows a similar pattern as it struggles to swing higher.

Volume has also been above average so far this month with the significant falls experienced in April, which is also another bearish sign for the stock, that investors have been aggressive in dumping the stock.

Currently the price has recently popped higher after reaching $4.00 last week, as it closed on Monday at $4.21, which may indicate some short term relief for the stock after significant falls.

Weekly Chart

The weekly chart provides some positive news for shareholders despite its bearish similarities to the monthly chart.

Similar to the monthly chart the weekly support level of $4.50 was clearly breached recently which is not a positive for the stock over the medium term. However after reaching within days its next support level of $4.00 a share, it appears to have respected the $4.00 support level for now. 

Last week's candle showing a long tail pointing down also indicates buyers stepping in to bid the prices highers giving some temporary relief to shareholders after falling sharply from the $4.50 levels.

Although momentum indicators are strongly in the negative supporting the bearish outlook on the weekly chart, it appears that the indicators are about to swing higher which could see the price move towards its previous support level of $4.50 over the coming weeks. However we would need confirmation of the weekly momentum indicators turning higher to support this.

If the $4.00 support level fails to hold over the next couple of weeks the next level of support is $3.75. Given that the yield on the stock is quite high now with the recent price falls and we are coming up to earnings season in July August, its unlikely that we will see the stock fall below the $3.75 support level without an earnings and or dividend downgrade in the next few months.

Daily Chart

The daily chart of Telstra has been a classic downtrend cycle for some time, with the stock reaching the extreme points of the trend on several occasions as indicated on the chart below. Given that the share price had recently fell below the trend line on the downside briefly and recovered back within its down trend indicates that the stock may be oversold and is due for a short term recovery and possibly back to $4.50 resistance.

A close above $4.50 could see the stock move towards $4.75 which is possible if investors decide to take advantage of the dividend in the coming months.

The slow stochastic on the daily chart has swung higher as it reflects the recent bounce after touching $4.00 a share. Momentum is still negative at -0.46 so caution is warranted still, especially since the stock is in a clear down trend momentum with plenty of negative sentiment surrounding the stock.

Overall the stock's bearish indicators and long term downtrend warrant the title of going from bad to terrible.  For any new investors who have taken advantage of the new lower prices may find the current dividend yields higher enough to warrant the potential risks. However existing shareholder may not share the same sentiment consider they are nursing considerable losses in the share price over the last 6  - 12 months.

Given the medium term outlook for fundamentals  from a loss of earnings from some divisions of the next few years together, as well as increased competition from TPG Telecom and a long term downtrend, it appears that the stock will continue to disappoint.

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US Stocks Bullish Run Fueled By Optimism Over Real Data

Since the election results in November US soft data (survey / optimism data) has deviated from hard data (actual US economic data). More importantly since December hard data has been falling as the economic news has deteriorated. Whilst soft data has continued to shoot higher along with a very bullish stock market. 

The Russell 2000 Index (Small Cap's) review shown below will show a very strong bullish uptrend. This pattern is quite similar to the 3 main stock indices DOW, S&P 500 and the Nasdaq. This highlights that the recent market surge in US stocks is more a function of market euphoria and optimism rather than actual improving economic activity and growth within the US economy.

Russell 2000 - RUT (Small Cap's) Chart Review

Monthly Chart

The Russell 2000 (RUT) has been in an uptrend for several years now as seen in the chart below. After a 3 year consolidation pattern of mostly sideways action between December 2013 - October 2016. The RUT index broke out of resistance of 1252 in November last year after the US election result win of Donald Trump, as all indices moved higher.

Currently the RUT has established a new uptrend within its larger long term uptrend shown with the blue line on the chart below. This uptrend started after the index gave a false signal when it closed below support of 1100 back in January 2016. After hitting the lows one month later the index has been steadily climbing.

Momentum Stalling - Consolidation Or Pullback Ahead

Since the RUT has had a strong 13 month rally in prices, the momentum indicators shown in the monthly chart are indicating exhaustion of the current rally.

I have circled both the momentum and Stochastic indicator to show that both are indicating a reversal of the strength in the market. Momentum indicator is still high however has pulled back to 2.80. The stochastic currently is sitting at a bearish cross as the blue line has crossed below the red. The last time the Stochastic had a bearish cross in July 2015 (circled on chart price action) the RUT index experienced a correction in prices for the next few months.

Since its only early March, it would be appropriate to wait for confirmation at the end of the month. If the momentum indicator is confirmed we could see the price action retrace back to the current uptrend shown in the chart at around 1315 - 1320 price range.

Since the bullish rally is quite strong its unlikely we will see a retracement back to support of 1252 - 53 level. Keep this target in mind though if we experience volatility in prices in March. Especially since the FED is likely to raise interest rates by 0.25% this month.

Weekly Chart

The weekly chart is showing a similar pattern to the monthly chart with the strong rally in prices since late November. Currently the price action is at or near the upper band of the uptrend channel shown in the chart below.

RUT experienced a strong burst in price around 5 -6 weeks ago as it made a new record high above 1400. Since then the price has been consolidating as it has struggled twice to climb back above the 1400 resistance level, with 2 weekly rejection patterns shown on chart as the price failed to stay above 1400.

Weekly momentum indicator is showing more weakness compared to the monthly momentum as it has made lower lows as it now sitting at 0.06 after reaching a high of 1.88 a number of weeks ago. This indicates the strength in the market that was present as the price made new record highs has disappeared. This explains the hesitation of the index to move higher.

The weekly stochastic indicator is also indicating exhaustion of the current rally and a consolidation or minor retracement in price is likely in the coming weeks.

The weekly chart pattern is confirming the monthly price action as the recent bullish run is running out of steam at least in the short term for now. Most likely the price action will move towards the lower uptrend channel band around 1300 - 1305 level. Based on the current bullish optimism its unlikely the price action will move towards support of 1282 - 84 level.

For confirmation of the retracement in price on the weekly chart, look for a weekly close below the 10 week moving average line which is currently at 1377 level.

Daily Chart

The daily chart price action as of last Friday's close on the 3rd of March is sitting just above its support level at 1,394. After breaking out approximately 2 weeks above the 1388 level the price action has been moving sideways and above its previous resistance level which is a bullish indication.

Contradicting the price action above the 1,388 level is that both Momentum indicators are showing a loss of strength in the market. Momentum has recently moved negative to -0.02 and the stochastic has also had a bearish cross a number of trading days ago. This means in the short term its likely we will see the RUT index close back below the 1,388 level.

If the index does close below 1,388 level, pay attention that the index stays within the previous sideways range between 1345 - 1,388. If the RUT index falls below 1,345 support level over the next 1 - 3 weeks the next target of support is 1,313.

Wildcard Event

Based on the strong bullish run of the RUT index and the major US stock indices, its unlikely we will see a retracement / fall in prices greater than 10% over the short to medium term time frame. However the FED will be meeting on the 14th & 15th of March to decide whether interest rates are rising in March. The decision will be made on the 15th. Based on prior announcements of a rate rise the market may experience with 1 - 3 days of the announcement a lot more volatility. If this was to occur we could see a mini panic of selling as the market digests the news. Therefore the wildcard this month is the FED announcement in the middle of the month that you should be weary of.

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Telstra Disappoints On Earnings Sending The Stock Below $5

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On Thursday Telstra reported a 12% drop in its half year earnings ending December 2016.  This took the market completely by surprise and the stock was savaged by investors as it fell 4.5% for the day on extremely high volume.

Telstra which is the largest market cap Telco in Australia is quite popular with retail investors and super funds because of its large dividends paid out annually. The key question going forward is whether investors will still support the stock as it struggles to grow its profits.

Today's chart review of Telstra we look at all 3 time horizons Monthly, weekly and daily charts to determine where Telstra could go next.

Disclaimer: This post is for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

Stock Review - Telstra (TLS)

Monthly Chart

With just over half the month completed in February it appears that Telstra will close below a key support line of $5 a share. If this is to occur by the end of the month this will be quite bearish for Telstra, as the $5.00 level has previously held up on a monthly chart when the price reached or fell below these levels. Since the stock is trading below the $5 level I have labelled this level of support now as its new resistance level.

Momentum which I have circled in the chart below is currently negative and has been negative for over a year now. This indicates the weakness in the stock since Mid 2015 is confirmed by the momentum indicator as well. The monthly stochastic indicator which is another momentum indicator has also turned bearish again confirming the break of the $5 support level.

If the $5.00 a share support level has been broken and confirmed by the end of February, the next stop for Telstra is $4.50 support on the monthly chart. This new support level is another 34c away from the current price on Friday's intraday price of $4.845.

Telstra Already In Long Term Downtrend Before Profit Announcement

If you take another look at the monthly chart below you will notice that Telstra broke its long term uptrend back in October 2015. Since breaking the uptrend line the stock bounced up and down for the last 18 months, before falling below $5 a share this week.

Weekly Chart

The picture does not improve for Telstra on a weekly chart with the stock failing to move toward the $5.5 downtrend line. Instead because of yesterday's profit announcement the stock has now formed a steeper downtrend line shown along the circle on the chart. If this down trend line holds it would mean that in the short term we could see sharper declines for the stock once the stock has gone ex dividend.

I have circled the weekly stochastic indicator to show that it too has turned down from close to its peak levels. This suggests that the trend has room to move and will continue to decline lower over the medium term.

Moving Average Bearish Cross

Telstra's weekly moving averages formed a bearish cross back in September last year when the 10 week moving average closed below the 50 week moving average. Since this is a weekly chart the moving averages crossing over late last year confirms that Telstra is in a medium to long term down trend phase.

In addition the current price is sitting below both moving averages which is another bearish indicator for the stock.

Just like the monthly chart the next level of support for Telstra  on the weekly chart is $4.50. Failure to hold this level would see Telstra move towards $4 a share. Considering Telstra still has a considerable decent dividend attached to the stock, it would be unlikely to see Telstra move below the $4.50 level without a further deterioration in profits and or dividends.

Daily Chart

Gap Downs On Heavy Volume Never A Good Sign

I have circled on the chart below the big gap lower where Telstra opened at yesterday after disappointing the market expectations on profit. The volume reached just over 118 million shares traded yesterday compared to the daily average of 28 million shares. When ever you see a massive increase above average volume like Telstra achieved yesterday coupled with a big gap down, the prospects for the stock in the short to medium term are usually never positive for the price.

Days before the profit announcement you will notice the stock got close to the $5.30 resistance level but failed to reach it. This was bearish indicator for the stock even before the announcement.

Now that the stock fell sharply the daily chart moving averages have formed a bearish cross as the stock's next support level is $4.70 a share.

Similar to the monthly and weekly chart the momentum and Stochastic indicators have confirmed the bearish move lower as they both are signalling overall weakness in momentum.

Conclusion:

After looking at all 3 charts above, there is no positive or bullish indicators for the stock on any of the time horizons. With the most likely direction for the time being to continue to head lower to the next level of support. The only bright spot for the stock outside of the chart is the big dividend that now looks more appealing if the stock can sustain the dividend over time.

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Whos Winning In The Aus Large Cap Healthcare Sector CSL vs Ramsay

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CSL (CSL) Chart Review

CSL Continues Along Long Term Uptrend Towards Record Highs

CSL has experienced a phenomenal run in its share price over the last 5 years as the stock has been able to consistently grow its profits and dividends under its previous CEO who retired last year.

The stock has risen from around the $29 a share mark back in late 2011 to an all time high of around $118
last July. This equates to an approximate 300%+ return over the 5 year span outperforming the local Australian index XJO considerably over the same period.

False Break Of Up Trend

Last November and December was a nervous period for CSL shareholders as the stock had been under a succession of monthly declines after reaching the highs set in July last year. Back in November it appeared the stock had closed below its long term uptrend which was a potential signal to sell based on the chart trend lines.

December trading in CSL initially followed on from its dismal performance in November as it experienced steep losses early in the month indicating that CSL was about to confirm a clear reversal and break its up trend and support level of around $98. However a surge in buying support in the second half of December, saw the stock completely reverse its losses for the month and finish slightly higher on the month. Since it respected $98 support and its trend line it provided a strong bullish signal based on the monthly price action.

January Follow Through Buying

The bullishness continued into January for CSL as the company had made an announcement of a profit upgrade on previous estimates provided by the company. This sent the stock soaring and finished the month at $112.30 on heavy volume, which is another strong bullish sign.

Based on the strong buying support in December and January and momentum rising supporting the rally, CSL is bound to reach its previous all time highs of $118 in the short term.

Note:

Watch the price action over the coming months for a potential reversal to its $98 - $98.50 support level which would signal a break of its 5 year uptrend. This outcome though has a very low probability based on its bullish indicators and price action.

CSL Weekly Chart Review

CSL Confirms Reversal & Close Above Down Trend

The weekly chart below gives a better indication of sharp V reversal of CSL share price in December, as well as the spike in price in January shown with the most recent long blue candle.

I have circled the area where CSL had closed above the down trend. This was the first signal of a change in sentiment for the stock and direction. If you notice the volume once the reversal in trend occurred was not accompanied by an uptick in volume due to the holiday period so the move could not be relied upon for confirmation. However the volume exploded shortly after in January after the company announcement of a profit upgrade over its original estimates came out.

The recent strong performance of CSL in the last few weeks allowed it to comfortably close above the $107 support level as it now heads for its previous high and resistance of $119 a share. However a failure to hold above $107 on a weekly basis will result in CSL heading back down to the $95 level on the weekly chart.

The weekly chart technicals of CSL are very bullish, with both momentum and stochastic showing strong support for the move higher. In addition the above average volume is also supporting the bullishness of move higher. The most likely move for CSL after reaching the $119 level in the short term, is to make an attempt at a new all time high after a potential brief consolidation at resistance.

Ramsay Healthcare  (RHC) Chart Review

Ramsay Healthcare like CSL had also experienced a large move in price over the last 5 years as the stock appeared to mirror CSL's performance over the same period. Ramsay went from around $19 a share in late 2011 to a high of $84 a share reached in September last year producing an impressive 340%+ return over the period. Slightly beating CSL same time frame performance.

Ramsay Breaks Its Long Term Uptrend

Once Ramsay made the new all time high in September it begun to fall in price following a similar path that CSL had experienced in the second half of 2016. Compared to CSL which was able to respect its 5 year uptrend in December, Ramsay has continued to move lower in December and January. In doing so Ramsay has confirmed a reversal of its long term uptrend in January as it closed below its support level of $68 a share.

Next Stop $56 Support.

Based on the confirmation on the monthly chart closing price in January, Ramsay next move lower is towards a previously strong support level of around $56 a share. Initially over the coming weeks and months. We may see the price move towards its previous support level of $68 though in the short term before it moves lower to its next support level.

Note:

Just like CSL if Ramsay was able to receive some material positive news on the company in the interim we could see the stock reverse the close below its uptrend and support level of $68. If this was to occur a close above its previous long term uptrend on a monthly basis would confirm the move.

Apart from any material news from the company, based on the chart technicals and momentum trending down the performance of Ramsay in 2017 will be weak.

Weekly Chart Review

The weekly chart for Ramsay does not provide much change in sentiment and analysis compared to the monthly chart. I have circled the key pivot points for Ramsay recently and resulted shift in trend as a consequence.

The stochastic indicator though is showing a divergence to the direction of the price action, however since its a lagging indicator provided the price continues to fall lower the stochastic indicator will reverse in line with the trend.

If the price in short term was to close above $68.50 on a weekly chart we could see a potential test of the $81.30 resistance level. A move that based on the price and momentum indicator trending down on the weekly chart is unlikely to occur.

The Final Verdict

After reviewing both large cap healthcare stocks recent price action on a monthly and weekly basis, its clear that CSL is clear favorite to outperform in 2017 over Ramsay Healthcare. If CSL's management had not increased its profit estimate last month, CSL could have easily found itself mirroring the sentiment and direction of Ramsay.

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Suncorp Group (SUN) Chart Review - Monthly Chart
NB: Charts prepared before the close of 19/12/16.

Suncorp Group shareholders have something to cheer about this Christmas in 2016, after several years of slow declining prices Suncorp Group looks set to finally close above its 2year downtrend.

For this chart review I have pulled the data over a much longer period than usual (Hence chart appearing condensed) to give you a good overview of the performance of this stock since 2007, together with some longer term resistance levels.

The first initial thoughts are that you will notice that the stock has still not recovered from its 2007 highs around the $19 a share range. On the positive side after collapsing in 2008 and 2009 to a low of around $4 a share, the stock like the overall Australian stock market has made a strong recovery albeit not at new all-time highs at $13.47.

Supporting Long Term Trend

Suncorp is showing a strong and healthy uptrend since making the lows in 2009. You can see there were a few unsuccessful attempts to close below the uptrend only to recover during the month.

After a few years of a consolidation within the bigger 9 year uptrend, Suncorp appears to be making a breakout higher with its first close above its 2 year downtrend. (See circled area on chart)

The first level of resistance for Suncorp now after breaking past $13 level this month is $14.60 resistance. With the strong momentum this month and usual bullish tendency of December trading month there is a good chance Suncorp may reach the $14.60 area with only a few weeks left in the month.

Since its the 19th of December with a little under 2 weeks to go, there is a potential possibility that Suncorp retreats and falls back within the downtrend line. Given the bullishness of both the US and Australian markets this month this scenario is only a remote possibility.

Lastly having shown a longer period for this monthly chart you can see that there are still several levels of resistance for Suncorp to clear before reaching its previous all time highs. After the near term resistance of $14.60 there is $16.00 a share as well $19 a share to reach before it can begin to attempt new all-time highs. 

Weekly Chart

The Drought Has Ended

Three weeks ago Suncorp was able to finally break its long term down trend on the weekly chart with a confirmed close above its downtrend. (See circled area below)

Prior to the break out Suncorp had been experiencing a long term downtrend since late 2014, as the stock failed to make higher highs. After reaching the lows of the year at $10.11 in February the stock has been able to make a staged recovery.

With momentum rising for several weeks, the move higher over the last 6 or so weeks has been well supported by strong momentum indicating strength behind the rally higher.

Suncorp is now fast approaching its next level of resistance at $13.70 with around 20c to go before reaching the level. The stock make initially struggle at this level as the previous two attempts failing to move higher. Therefore the $13.70 level is a critical price point for Suncorp over the last few weeks of the year. A failure to close above the next resistance level could see the stock fall back to $12.85 level of support.

Daily Chart

Trump Effect

Since the day of the US election when the news of Trump winning shocked the markets into freefall temporarily, Suncorp has been able to enjoy a spectacular move higher for a alrge cap stock. After closing at $11.47 on the 9th of November the stock has rallied $2 a share or over 17% in a 6 week period.

Due to the fact that the rally has been so strong the daily chart uptrend is quite steep. (See chart below) The reason why I'm mentioning the steepness of the trend is because the steeper the move of a trend the shorter the trend normally lasts. This is because buyers quickly disappear with such a large move forcing the price to fall violently on most occasions.

Warning:

I suggest to wait for a retracement / pullback in price before considering this stock due to the very strong run up over a short period. I have drawn in the uptrend line to carefully watch for a reversal to occur.

Given that volume has also been above average which is a very bullish sign, Suncorp most likely will reach the $13.80 resistance level first before experiencing a pullback in price.

Overall Suncorp looks very bullish on all 3 time horizon charts following the big banks higher in the month of December. I have indicated the resistance and support levels to watch out for over the next couple of weeks.

Lastly be mindful of any sharp increases in volatility over the holiday period we are entering into now with low volume over the holidays the markets can move erratically.

Back in the last week of December last year and the first week of January 2016 the markets had the worse start of the year, after the FED raised interest rates in December 2015, just like they have in 2016.

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Domino Pizza (DMP) Chart Review

NB: The charts shown in this review were taken prior to the close of trade on the 7/12/16.

Domino Pizza is one of those stocks that if you never owned it wish you did. It has become one of those amazing success stories, where you can start off as a small company with a big vision and grow into a multi-billion dollar company.

Domino Pizza has become a fast growing company with consecutive years of strong profit growth that now spans multiple countries. Due to its amazing growth the stock has gone from below $10 a share only a few years ago, to a stock that reached over $80 a share in August this year.

Has The Dream Run Ended?

Observing the monthly chart below of Domino Pizza, it would appear the stock looks to be in trouble as it's in the process of breaking its second uptrend. If you take a closer look at the chart below, you will notice that Domino's had previously accelerated its price growth on 2 occasions from its original long term uptrend. (See chart trend lines below) Currently in December it appears that the stock is slowing down considerably as it heads back to its original long term uptrend that began in 2013. (See chart)

Although Domino's would be considered to be in a very strong uptrend based on its long term history. The current price action suggests that if Domino's was to trend towards its original long term uptrend, the stock has a long way to fall before it reaches its destination.

The nearest support line to watch out for Domino's on the monthly chart is at the $63.90 level. If the stock closes below the support level on a monthly chart, it will confirm the break of its second uptrend, with little support for the stock to head lower.

I have circled momentum on the chart to highlight that even though it's still positive at 7.30 it has fallen considerably from the highs as it heads toward zero momentum.

Since its still early in December it would be appropriate to take a wait and see approach towards the end of the month. NB: Global and Aussie stock markets are quite bullish presently heading into the Christmas rally, so to see Domino's weak in this environment doesn't bode well for the stock.

Weekly Chart - Key Levels To Watch

The weekly chart shows the stock is at a current key level in terms of trend and support levels. If Domino Pizza were to close below the $64.40 level by Friday's close it would confirm the break of the long term weekly trend as well support. This would be an extremely bearish sign for the weekly chart.

Provided we close below the nearest support, the next step for Domino's is $60.50. With momentum at negative 7.67 and heading lower the probability of break of trend on the weekly chart is high.

If buyers were to step in by the end of the week and hold support of $64.40, look for the stock to move towards resistance level of $70.30 and make another attempt to close above this level.

Daily Chart - Multiple Bearish Indicators

Domino's Pizza on a daily chart is at a critical price level, as the stock approaches support of $63.85.

Currently the price is below the 10, 50 & 200 day moving average suggesting the stock is under heavy selling pressure. Many traders and investors use the 200 day moving average as a key indicator for a stocks trend.

Momentum is negative 5.05 and falling, showing the selling strength is accelerating and supporting the price lower from here.

As previously mentioned since the stock is weak in an overall bullish environment for Aussie stocks, suggests that the stock is no longer popular to own for its potential share price growth prospects in the short to medium term.

Potential Death Cross

Watch the support level of $63.85 over the next few trading days for this stock, because if the stock continues to fall from these levels it will pull the 10 & 50 day moving average below the 200 day moving average. If this occurs it would form what traders call a 'death cross' which ultimately confirms that the stock is in a downward cycle in price.

Overall the stock appears quite bearish on all 3 charts presented, even though the stock is still comfortably above it long term trend on the monthly chart. Over the longer term the stock could resume its upward trend and respect its longer term trend, however over the next weeks and months may continue to struggle relative to the performance of the ASX market.

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On the weekly chart below it's not looking as bullish for a reversal just yet, as there are few things still required to confirm a reversal.

The positives:

*The current price on the weekly chart of $5.03 is above the 10 week moving average of $5.00.
*In addition the previous week strong up week was on above average volume which is a bullish signal.

The Negatives:

*The price action on the weekly chart is currently below the resistance level of $5.10. (See chart)
*On a weekly basis the chart is still within a down trend, with a close above $ 5.60 - $5.70 required for confirmation.
*The 10 week moving average is below the 50 week average showing bearish cross.
*Volume on the week just completed was below the average showing that there was a lack of conviction with the move higher.

Overall we would need to see on the weekly chart the price move above $5.70 level with above average volume to confirm that the current reversal taking place is valid.

Reversal Of Downtrend - Daily Chart

The daily chart is showing good signs of a reversal in trend.

The first important thing to note is that the downtrend that started back in July this year has ended, as the current price is clearly above the downtrend line. (See circle in chart below)

The closing price on Friday of $5.03 is now above the previous resistance level, which is now the new support of $4.94. Its important to stay above this level to confirm the reversal.

Lastly the price is above the 10 and the 50 day moving average which is also a bullish sign.

Caution Ahead - Where Is The Volume?

One of the most important things in trading after the price action is volume. Whenever you are trading and you are looking to go long (price to go higher) its essential that you have above average volume for confirmation to ensure the market is behind you with your trade. You want to be with the herd to catch the biggest moves not against it.

If you take a look at the chart, I have circled the volume below. With the last 5 days trading volume all below the daily average volume. This is a bearish signal.

Because there is a lack of conviction with buyers on the daily chart, I would wait for the chart to move above the next level of resistance at $5.22 - 25 with an accompanying above average volume to confirm the reversal has taken place.

There is a high possibility that Telstra could fall back within the down trend and close below support of $4.94 in the short term due to a lack of volume with the current price action.

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The Perfect Storm Set To Pop Aussie Apartment Bubble Bringing Down The Economy With It

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The Aussie apartment boom that has turned into an epic bubble with record sky high prices, is showing all the signs for the perfect storm which will ultimately pop the apartment boom bubble. With the popping of the apartment boom, it will simultaneously bring down the Australian economy, as the apartment market is set to have a sizeable correction in 2017 and 2018.

A short Look At Australia's Real Estate Market.

Australian real estate prices have been going up for over 25 years with hardly a pause in between since the late 80's. The last time real estate prices fell considerably was when Australia last had an official economic recession back in 1987, when interest rates skyrocketed to around 17-18%.

The chart below show the price growth of real estate, rents and CPI since mid 1987. Initially the price growth of Australia's real estate market climbed steadily taking 11 years to double in 1988. From there the price growth continued to accelerate with the next 100% increase in price taking 4.5 years to reach.

An interesting observation on the chart below is that real estate prices have risen by over 700% since 1987, yet rents have risen  just under 300% over the same period. This chart clearly shows that the majority of the price growth was not supported by a fundamental increase in rents to support the higher prices, but rather an massive surge in mortgage debt over the same period drove prices higher.

Rising Credit Leads To Booms & Contractions In Credit Lead to Busts

Professor Steve Keen in the interview shown below highlights his own reasons why he see's a recession coming in 2017 for Australia.

Steve highlights a number of reasons for his prediction, including a deteriorating terms of trade, the ending of the mining investment boom, the Government's pursuit to cut spending and a reduction in foreign buyers for real estate among others. However, the most important reason is a deceleration of credit / mortgage debt. Based on Steve's research and economic models the deceleration of mortgage debt growth is the leading cause for all economic downturns globally including the US, Japan and Europe economic recessions, with a correlation close to -1. What all his research showed is with the deceleration of mortgage debt growth, lead to a collapse in real estate prices which then lead to an economic recession in those countries.

Due to this research, Steve believes Australia will react the same way as other countries based on slowing growth in mortgage debt. Especially, as the conditions have already begun to slow based on the bank's tightening their standards overall. However, most of the lending restrictions imposed from the banks are for off the plan apartments and existing apartments within most major cities around Australia.

Given Australia was recently ranked number 4 in the world in the UBS global real estate bubble index, see: Australia's debt addiction fuels record real estate bubble, its easy to see that prices could fall over 20% as lending conditions continue to tighten and their effects take hold.

Why Are Banks Tightening Lending Conditions With Record Real Estate Prices?

The simple reason is that the banks do not want to be caught in a credit crunch like they faced back in 2008 and 2009 where they had to have the RBA and the US FED provide considerable financial assistance to keep them afloat.

Right now the banks can see what everyone else can see if you look at all the data publicly available. Australia will face a major oversupply of apartment dwellings over the next 1 - 3 years from a major ramp up of approvals of apartments. The growth of approvals over the last 7 years which you can see in the chart below, is leading to a big jump in the construction of apartments with a number of them being competed in the next 18 months.

Due to the rapid increase in approvals there has been a massive spike of cranes currently being deployed in Australia, to handle the apartment boom that is currently taking place. As you can see below in the chart Sydney and Melbourne are leading the way in Australia, dwarfing most major cities in the US including New York and LA.

With all the current construction for apartments taking place from the buildup of approvals, especially in the last 3 years, Australia is facing a glut of new apartments that are about to be completed in 2017 and 2018.

Knowing the upcoming glut of apartment completions is about to come available on the market soon, the banks have taken action to protect their capital by providing most of their tightening around new and existing apartments within the CBD's of Sydney, Melbourne and Brisbane where most of the construction has taken place.

Highest Housing Completions = Biggest Housing Price Fall

The chart below shows a comparison of house prices in Australia, UK, Spain, US and Ireland with an accompanying housing completions chart.

The most obvious data from the chart is both Ireland and Spain had the biggest fall in prices during the GFC in 2008 relative to the other countries shown. Those 2 countries also had the largest ramp up of new housing completed from 2000 - 2007.

Surging Bond Yields Leads To Higher Mortgage Rates In Australia.

Back in October US Government 10 yr bond yields were sitting at around 1.55%. Fast forward one month and rates are now sitting at around 2.3%.  A 0.8% increase from the October levels (see chart below). The reason why this is a big deal, is that the US Government bond yields are what are utilized to benchmark most of the different types of retail and commercial loans.

In Australia the banks also rely heavily on overseas markets and especially the US markets to provide the necessary funding to support their loan book. So as bond yields have skyrocketed in such a short period in the US, it has already led to the banks in Australia lifting rates by between 0.20% - 0.60% on their fixed loans as their funding costs have jumped dramatically.

With mortgage rates rising and lending conditions being tightened its becoming more difficult for developers to sell their off the plan apartments as investors find it more difficult to access bank lending to finance their purchases, resulting in a slump in demand for off the plan apartments.

Melbourne Developer Offers $21,000 To Encourage Buyers

In an attempt to lure buyers to a new off the plan development in Melbourne, a large well known developer is now offering $21,000 to investors in an attempt to sell their $420,000 1 br apartments in Southbank Melbourne. The idea is to match the investor or first time buyer's 5% deposit of $21,000 to  least assist them in meeting a 10% deposit.

The problem that this Melbourne developer and other developers will find, is even with this huge financial incentive, many of the banks in Australia have lifted their minimum deposit requirements for off the plan apartments in major cities to between 15% - 25% deposit.

Apartment Bubble Bursting Leading To Australian Recession

Similar to Professor Steve Keen's prediction that a recession is coming to Australia in 2017 or early 2018, I also believe that the perfect storm of conditions are developing that will soon pop the apartment bubble that has been taking place in Australia.

When the correction in apartment prices takes hold, it will have a domino effect on the Australian economy, leading to a contraction in economic activity in Australia. The reason for this is because the real estate industry and related industries now has the largest contribution to GDP at around 28%. (See chart below)

With record amount of apartment construction taking place over the last few years, fueling a considerable amount of GDP growth, I believe the slowing of the construction industry will start to subtract heavily on GDP growth in 2017 and 2018 leading to Australia's first recession in over 25 years.

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On Friday the Australian big banks which make up the majority of the Financials Sector finally were about to break out of its year long resistance, as it finished just above its 6,820 resistance at 6,823. The strong performance from the banks on Friday also lifted the Aussie XJO 200 index higher to 5,359.

Since the US election results were released some 2 weeks, the US markets have been on a strong V like sharp recovery which had lifted most world markets with it. This included the Australian stock index XJO 200 which up till recently had been struggling. The bullish performance of the US markets had also been the catalyst for the  reversal in banking stocks higher in Australia. Which in turn significantly helped the XJO index with its recovery.

The Key Questions To Answer Going Forward

Is the Financial sector breakout a false breakout, or will the financials sector hold its bullish momentum going forward?

Can the financials continue to lift the XJO 200 higher out of its downtrend and back into an uptrend?

Lastly will the strong run from the US markets continue and support the XJO 200 index higher?

Can The Financial Breakout Be Trusted?

Since the breakout on Friday for the Financials sector excl A- REIt's was not exactly an overwhelming strong breakout, as it closed 3 points above its year long resistance. The most sensible idea would be to wait for more information from the market.

Overall the technical's looks good for the sector, however it's usually best to wait to see if the sector moves higher and can be supported by the strong momentum. If the sector can than retrace and rests on its old resistance level of 6,820 to form a new support level this would confirm the breakout.

If the sector moves higher from here this week and later reverses to close considerably below the 6,820 level, to say the current 6,580 support level this would confirm it was a false breakout. Considering this is the seventh attempt this year to break out higher there is a higher probability that it will not be able to maintain the breakout.

Note: Why The Financials?

For investors and or traders who are not aware of the significance of the financials sector in driving the overall performance of the XJO 200, I wanted to quickly highlight that financials excl A REIT's sector has the largest weighting on the XJO 200 index. With 4 out the top 5 largest market cap stocks within the XJO 200 belonging to this sector.

Big Picture Review - XJO 200

The XJO index has had a mediocre calendar year so far, however before having a closer look at what's been happening I wanted to quickly review the long term chart for perspective.

The first thing to note is that even though the index is currently been trending lower, the index has been able to hold its 5 year long term uptrend. This is despite being within a mini downtrend inside its longer setup uptrend.

You can see on the chart below that on a monthly basis it touched its trend line 4 times over the last 5 years and respected the trend before heading higher each time.

Currently in the month of November you can see that the index had fallen considerably touching a low of 5,052 which was the day of the US election results. However just like the US markets the XJO was able to rally stronger to close on Friday at 5,359 and is currently up for the month.

Since it respected its uptrend and has completed recovered from its earlier monthly losses it's behaving very bullish on a monthly chart and based on previous history since 2011 it would indicate that the index will be heading higher over the coming months.

To confirm the bullish action and a continuation of its uptrend  on a monthly chart, we would need to see a monthly close above its down trend as indicated in the chart below with the rectangle box area. Otherwise its possible we could see a reversal of its uptrend if it its unable to close above the down trend and it respects the downtrend line.

Within a weekly chart (See chart below) the index does not look strong when compared to the strong uptrend performance over the last 5 years.

After reaching multi year highs in March 2015 the index has been steadily heading lower and has now formed a down trend that it has failed to close above on a weekly chart.

I have circled on the chart action the 2 times in the last 18 months where it has failed its uptrend. Once in August last year and again this year in late October. The first time it happened in August you can see the index fell sharply for several months.

Since the momentum on a weekly chart is negative at -156 and the index is still within its downtrend, it's likely we could see the index move higher in the very short term to the downtrend line (shown on the chart) before pulling back.

On the chart I drawn the 2 possible scenarios I see that could happen over the coming weeks.

1. We see the index move higher, than have a slight pullback before continuing higher and closing above its downtrend. (The Financials sector would have to hold its breakout to support the XJO 200)

2. The index moves higher, touches the downtrend line and reverses back down to 5,030 support level.

Daily Chart - Downtrend With Bullish Indicators

Whilst the daily chart is currently in a downtrend and has broken its long term uptrend, the chart has a number of bullish indicators present that could see the index reverse its downtrend.

* The momentum indicator has recently turned positive and is now at 130 after its strong rally from the lows reached on Election day.

* The current price of 5,359 reached on Friday is above the 10, 50 & 200 day moving average.

* After breaking support of 5,195 on the 9th of November the XJO 200 index quickly reversed back above its previous support level the next day, indicating a false breakout of support.

The Key Levels To Watch

For the daily chart of the XJO 200 to continues its strong move higher and reverse its current downtrend, we would need to see a confirmed close above its 5,390 resistance level. If it can close above that level and its downtrend line marked on the chart, we could see the index continue back on its previous long term uptrend.

Failure to close above 5,390 resistance and its downtrend line would result in the index most likely falling back to the 5,195 support level.

To finish the review of XJO 200, I wanted to take a look at the price action of the US S&P 500 index since the US markets usually moves the Australian index with it.

S&P 500 Stuck At Resistance

On Friday the S&P 500 index briefly touched a daily high of 2,189.89 which was just slightly below its current resistance level of 2,190.

You can see on the chart below that the index had reached the resistance 2 prior times already back in August this year before fading lower.

Considering the US index has had a strong rally higher since the Election results came out 2 weeks ago, the likely outcome in the short term is that the US index will pull back briefly over the coming days. Its even possible that after such a string of higher days over such a short period that the index could fall back to the 2,155 support level, before considering another attempt to close at an all time high.

If the S&P 500 index is unable to climb higher in the very short term, it would have a negative impact on the Australian XJO 200 index in its attempt to continue higher. 

So to sum up the review there are another factors in play that could effect the XJO 200 direction. The biggest factor in the short term being the strength of the US markets, which directly impact the direction of the Australian financials sector which considerably impacts the bigger XJO 200 index overall.

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Source:

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The US election results overnight stunned the mainstream media, wall street, world markets and millions of people around the globe. After initially falling sharply on the news, the markets eventually recovered and moved to finish higher as the mood turned from fear to bullishness.

Once the markets saw that Donald Trump moved to the lead early in the election results, the markets around the globe began to panic as the DOW futures was down over 800 points, the S&P 500 futures was down 5%, Gold jumped up over $50 and currencies moved violently as the odds turned to Trump becoming the new President.

Markets 180 Degree Reversal.

Once the S&P 500 futures fell by 5% the index automatically went to limit down, and temporarily stopped trading. Once trading resumed the S&P 500 futures began to slowly climb as the limit down measures meant the index could no longer fall more than the 5% level for the trading day.

Once the S&P 500 began to climb with the DOW, the massive fear that was gripping the markets slowly moved to cautioned optimism as the markets slowly crawled back the losses. By the time Trump was giving his President elect speech early in the morning US time, the DOW had recovered to be down 300 points. By the end of the trading day in the US with the results in for the new President the equity markets swung to a strong gain for the day.

S&P 500

The chart below shows that initially when the markets opened that the S&P 500 fell to the support level of 2125 before slowly climbing during the day for a big swing towards an up day closing at 2163.

Since momentum is now back into the positive and the S&P 500 closed above the 2157 resistance level the next target is 2190 which is back to it's all time highs for the broad US equity index.

US 10 Yr Govt Bond

One of the interesting swings in the markets overnight was in the bond markets. During the initial fear stages of the market the US 10 yr Govt bond yields fell all the way down to 1.70 level as investors moved into bonds bidding up bonds as the selling accelerated out of stock futures.

Like the equities market the bond market began to turn around and swing from a 1.70% yield on the 10 year to as high as 2.09% jumping by 20 basis points by the end of trade. Currently the 10 yr is sitting at 2.005 level.

The previous resistance level which is now support is around the 1.97/98 level, with the next resistance level for the US 10 yr Govt bond at 2.13%.

Lastly you can see that since June of this year that bond yields have been climbing since reaching the low 1.30's level and have broken its downtrend on a daily chart.

Crude Oil

Crude oil had a crazy day after having been down considerably to as low as $43 and change which was also a key support level, to a swing to the green rising to 45.25. Currently in the next day of trading crude is sitting at just over $45.

Crude is currently in a middle ground with no clear direction at the moment. Having said that crude recently broke its long term uptrend which is displayed on the chart by the blue line which is a bearish signal for crude moving forward.

The key areas to look out for in the medium term are $46.25 to the high side and $43.05 on the low side. We would need to see a break out in either direction to determine its next move.

USD/JPY

Currencies around the globe experienced violent moves overnight as the market tried to digest the news that many did not expect to occur within the US election.

The USD/JPY pair fell sharply initially to a low of 101.18, before climbing sharply during yesterday's trade to also climb into the green reaching a high 105.88.

The technical's for this pair has recently turned bullish, after reversing it's long term down trend and clearing the previous resistance level now turned support of 103.88.

Momentum has now moved positive and with the strong reversal intra day the next resistance level for the pair is 106.83. Currently it's sitting at 105.57 at the time of writing this.

EUR/USD

The EUR/USD pair had a similar outcome to the USD/JPY but in the opposite direction. After climbing strongly when news first came out that Trump was in the lead and looking likely to win the election. The EUR/USD pair jumped as high as the 1.13 level which also market the high end of the down trend level for this pair (see chart for trend line).

The currency also reversed course during the day and swung from a strong gain for the day giving up all the gains and falling for the day to reach a low of 1.090 level.

Momentum is only just positive and looks likely to swing back to the negative. The likely next stop for the EUR/USD is down to the next support level of 1.088 as shown in the chart below.

Gold

One thing that the gold bugs had expected was that if Trump would win that Gold would jumped sharply higher.

Unfortunately for Gold investors their prediction did not remain true as the trading day continued. Gold initially jumped spectacularly higher to a high of $1,336 for the day, before giving up practically all the gains to finish around $1,277 level.

Currently in the next day of trading Gold is slightly higher sitting at $1,286 at the time of writing.

Looking ahead for Gold it has 2 key levels to clear before it could regain it's uptrend. Its first resistance level is around the $1,305 - 08 level which it breached intra day but could not close above that level. If it clears this level the next level to close above is its downtrend line shown in the chart. During the highs reached Gold hit its downtrend at around $1,336.

XJO - Aussie Stock Market

Australia was one of the stock markets that was trading as the results were unfolding for the election yesterday. The Aussie market index the XJO was initially up in the morning when the market believed Clinton was winning. It quickly swung to the downside sharply following the US futures market, hitting a low of 5,052 which was around it's strong support level reached back in late June, before recovering considerably by the end of trade yesterday.

Today the XJO has risen sharply on the back of the swing in the US markets to around 5,300 level at the time of writing.

Since the XJO is currently sitting comfortably above its previous support level of 5,190, its next target is around 5,390 - 5395.

Keep in mind though that Momentum is still well in the negative at -142 as well as the current price is sitting below its 50 day moving average. The XJO would need to see buying to continue in the US markets to help lift the XJO out of its current slump.

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Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.