Travelling Technicals with Global Indices: NZX 50

Today's technical report is focused on New Zealand, a nation that's small in population but prominent in global trade and financial markets with its local currencies, the New Zealand Dollar or otherwise known by its nickname the Kiwi, making up one of the major currencies that's actively traded on a daily basis around the world having distinguished itself as a gauge for commodity driven economies.

Having a wide exposure to agricultural production it's not surprising to see that two of its main trading partners namely Australia and China contribute a significant amount of trade to the Oceanian country equating to roughly 40% of all exports.

Politically the country is fairly stable if not away from the world spotlight of scandal suggesting a safe destination for investment, a requirement that's becoming ever more wanted in current financial market climates. Let's get to the charts;

Monthly

The most distinct feature on this chart is probably the performance it's exhibited after breaking through the previous highs of 2007, cementing its position as one of the few global equity indexes that has successfully overcome this hurdle. Last month's candle indicates the strength of the bulls by stampeding through the field. with ease. 

There's a clear feel of momentum in this chart with a 13 SMA overlaying the price candles to assess the level of buoyancy driving the price higher. The MACD lies clouds above the zero line once again shifting the bias in favour of the bulls. I've labelled a period of impulse, a situation where there's a brief pause in momentum followed by a renewed surge in price. If we were to look at the current indications on the MACD, it appears as if momentum is not fading away as suggested by the histogram. 

It's important to note the sharp uptrend that's been in place since the middle part of 2012 remains intact. I use the word sharp because the steepness of the gradient is not sustainable over the long term so it's vital that any signs of extreme weakness shouldn't be taken lightly. The most probable cause of the preceding candle was the covering of short positions indicating the markets propensity to find a top so we can't discount this fact.   

Weekly

On the weekly I've drawn in the sharp uptrend we saw on the monthly but you'll notice it doesn't look as steep as the monthly. I've also added in vertical lines to indicate the rallies that experienced an accelerated ascent. The reason why I've added the lines in is to show that after an extended period where no significant pullback was experienced, the chart either goes through a phase of consolidation or tapers down on momentum and steadily climbs higher at a slower rate. 

Vertical Line 1 and 2 are evidence of this with the most recent line 3 showing similar characteristics to prior rallies and looking  rather stretched at the moment. Given the increased levels of volatility being found in most markets at present I would think the possibility of seeing a pullback as likely. If we were to consolidate in a sideways pattern we would see larger ranges candles than what we've seen previously. 

Overall the chart looks steady for which you can't fault it but as said before buying into it now might be unwise. If we see a pullback materialise you could use that as a signal to reassess the valuation and perhaps step into the trend but be ensured to do so with an optimal edge.