The Global Dow
I thought it would be fitting to start things off by looking at an index that covers a wide range of equites not only specifically the US, since most index followers tend to do, but a focus on other larger nations that make up a significant contribution to the World GDP added together with the US. Corporations such Sony, AstraZeneca and Nestle but to name a few are some of the recognized companies that are leaders within their own sectors that are Non-US but have market capitalisations that compete well with their US counterparts.
The Global Dow has been created around the concept of globalisation with representation of 150 global companies all equally weighted, most of which come from developed economies but a decent amount being domiciled or have large exposure in emerging markets. It was started on the 31st December 2000 with a base value of 1000 and has reached highs of just over 2800 in 2007 before the onset of the Financial Crisis took the world by surprise.
Not surprisingly the number of US stocks included make up roughly 40% of the index while Japan comes in second with 10% and Great Britain 8%, all nations that have become very industrialised over the past century which would suggest a large contingent of both industrial and financial sector stocks. This proves true in the fact that one quarter of the index is made up of these two sectors with a staggering 10% coming from Oil & Gas.
I do feel rather let down by the fact that China's representation only amounts to 3% but I think we'll begin to see that change as financial market liberalisation takes place and more openness encouraging foreign investment into new territory.
Let's get down to the charts:
Monthly
There are a number of technical points that suggest the above chart is exhibiting weakness at present which is concerning. Firstly I've highlighted the all time highs the index made during a period between the end of 2007 and beginning of 2008 as seen in an orange box. If we compare these to the attempts made recently by the index last year, the feeling is dismal.
Secondly the long term uptrend that has remained firm since it started in 2009 is seemingly finding price action grinding along. If world equities were strong enough as many have thought to be the case over the last four years, the price would've used the uptrend support as a perfect spot to draw buyers in to take things higher. At one point that seemed the case with a rather large white bar but subsequently proceeded by continuous red bars which does take the sting out of things.
On the technical indicator side of things we see the stochastic stuck in a situation where it seems unable to reverse any impact from the pullback. I've once again highlighted three spots I think are critical to this thought with the most recent being the all important marker whether we continue upwards or eventually break the back of the bulls. A series of lower lows does tend to give the bears enough impetus to execute a damaging blow to the longer term side of things.
The RSI has broken below the 50 mark for the first time since 2012. I found this to also be important since we've seen the Fed prop up the markets with "free money" with many other central bankers following the same path since 2012 which is why we've seen a fantastic run in equities. However now the Fed has reversed its action and now begun the course of hiking interest rates equity markets are finding it more and more difficult to give reason to invest.
We saw a test of the 50 from underneath and then a failure, something I think could prove dangerous ground for the bulls here and we're going to need to see a stellar performance on par with some of the great rallies of the past bull run since 2009 and to be fair, the market in general really doesn't possess the tenacity at present to execute that.
Weekly
Zooming in closer on a weekly basis we can see how things have unfolded over the last year or so and the most notable being the sideway consolidatory tone that the overall world market has struck as it readied itself for a rate hike from the Fed and possibly the direction other central bankers would take in response to that.
I drew a lime green circle to indicate the point where the strong uptrend had finally exhausted the momentum it was able to garner and started it's sideway movements. It appears that a Double Top has slowly been forming with a break occurring during the panic we saw during the month of August when fears of China's economy not living up to expectation strangled the market.
A rally was staged as with most global markets and many would believe that the floor or support that had been broken was now null and void. However this is not the case as you need to see at least half the value of the Double Top Formation taken out before you can affirm that view. I think 2500 would be a just level to indicate that and judging the rally and failure to get anywhere close does imply the bulls simply had their flair taken away by the shock drop seen in late August.
Since November we've seen a steady trend downwards back below that support which does suggest that it could be the line in the sand in terms of polarity. If we stay below these levels I think it's safe to say that continued pressure by the bears is to be expected.
Lastly the fact that the price has been oscillating between the 50 SMA and now begun deviating tremendously to the downside does also indicate that we are about to enter a corrective phase. We are starting to see a slight gradient developing on the 50 SMA and the longer the price stays under the 50 SMA the more easier it is to form a strong downtrend.
That concludes the first Travelling Technicals and I do hope you enjoyed it. If you have any feedback you'd like to give you're most welcome to contact me on email at cadetrader@gmail.com I do value your opinion and would like to hear your own thoughts on the current situation in financial markets.
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