Saturday, 3 September 2016

Weekend update - World monthly indexes

It was a broadly bullish month for world equity markets, with net monthly changes ranging from +3.6% (China), +2.5% (Germany, Russia), +1.0% (Brazil), to -0.2% (USA - Dow). Considering ongoing global QE, emergency level int' rates, and mostly non-recessionary data, the mid term outlook remains bullish into spring 2017.

Lets take our monthly look at ten of the world equity markets

USA - Dow

The US market was the weakest of the ten markets that I regularly highlight, with a net August decline of -31pts (0.2%). That ended the run of six consecutive net monthly gains. It is notable that the Dow did break a new historic high of 18668.

Underlying MACD (green bar histogram) cycle continues to tick higher, and is now moderately positive. The upper bollinger will be offering the 18900s by late September, with 19k viable during Q3 earnings in October.  

Best guess: continued upside (if somewhat choppy), with the 19000s due by mid/late October - just ahead of the US election. Any price action >19k, should give strong clarity that the giant psy' level of 20K will be hit, whether just before year end... or a more viable early'2017.

Equity bears have absolutely nothing to tout unless a break back under the 18k threshold, which now acts as first major support.


The economic powerhouse of the EU - Germany, saw a net monthly gain of 255pts (2.5%), settling above declining trend/resistance @ 10592. Next soft target is the 11K threshold, with 12K just about viable before year end. Underlying MACD cycle is set to turn positive in Oct/Nov. Things only turn bearish on a break under rising trend/support... <9K.

There is a very clear and valid wave count for the DAX, with a fourth having completed in February. How long might a fifth last? A fair estimate would be (at minimum) into spring 2017...  if not another full year to spring 2018. A primary scenario would be a new high of 15/16k, and then a 50% bear market back to 8K in 2019/20.


The BoJ fueled Nikkei, settled higher for a second consecutive month, +318pts (1.9%) at 16887. Broader price action remains bearish, still stuck under the key 10MA. Things turn provisionally bullish with a break >17k. At the current rate, a bullish MACD cross is at least another 4-5 months away.

The underlying issue with Japan is one of demographics, as the population is in the early phase of collapsing from a recent high of 128 million to around 87 million by 2060 - see for some interesting details.

Either the BoJ are lying that they don't know why the monetary deflation continues, or its just some kind of societal denial. There has been talk about immigration reform (cheap foreign labor to take care of the ageing population), but for the moment, it still seems that most simply don't want to address the issue of 'lack of babies'.


The Shanghai comp' managed a third consecutive net monthly gain, +106pts (3.6%) at 3085. Price action remains rather stable - after the hyper-ramp in early 2015, and the subsequent crash. First support is the 3K threshold. Underlying MACD cycle is set for a bullish cross within 2-3 months. First upside target is the 4K threshold, and then 4400/500s. The 2015 high of 5178 looks out of range until spring 2017.

A key wild card this autumn remains the PBOC. Will they meddle with the Yuan again, as they did in Aug'2015? In addition to swaying international terms of trade, the Chinese leadership would certainly prefer to see stock prices rally into 2017. I'd imagine the communists overlords would be very pleased with anything >4K, relative to the Jan'2016 low of 2638.


The Bovespa settled higher for a third consecutive month, +592pts (1.0%) at 57901. Next target is the 60-62k zone - the high from 2014. Things turn hyper-bullish on a break above the May'2008 high of 73920, but that is another 24% to the upside.

With the Olympics successfully completed, the Brazilian populace have to get back to the reality of an economy in deep recession, and with continuing political turmoil - as Rousseff just got the boot. Clearly, the commodity based economy of Brazil is going to need to see some inflation for its economy and equity market to break up and away.


The Russian market managed a rather significant net gain of 23pts (2.5%) at 951. The psy' level of 1K remains very powerful resistance. Russia is particularly tied to oil/gas prices. If there is some renewed upside in energy prices in the months ahead, the Russian market is going to break >1K. From there, the next stop would be the 1200 threshold, which is 24% above current levels. However, even the 1200s would still be barely half of the levels from early 2011. Is Putin not under massive political pressure about what remains a collapsed Russia market?

UK - FTSE 100

The UK market climbed for a third consecutive month, settling +57pts (0.8%) at 6781, with a notable high of 6955. It remains ironic that the surprising BREXIT result now marks a very notable spike floor candle from 6504. The 7K threshold remains massive multi-decade resistance. Any monthly close in the 7000s would be an extremely bullish sign, and offer the 8000s in spring 2017. By year end, rising trend will be around 6200, and things would only turn bearish on a break under it.


The CAC settled essentially u/c for August at 4438. There is a clear break (if sideways) of declining trend. First target is the psy' level of 5K. The April 2015 high of 5283 looks out of range before year end, but looks achievable in spring 2017. If that occurs, broader upside to challenge the Sept'2000 high of 6944 will be on the menu.


The ugliest of the EU-PIIGS - Spain, saw a net gain of 129pts (1.5%), settling @ 8716. The IBEX has broken outside of declining trend, and is currently trading just above the key 10MA, for the first time since Aug'2015. First natural upside target is the psy' level of 10K, which is some 11% higher. Far more critical is the 12K threshold, which has been extremely powerful resistance since late 2009.

Equity traders should be very mindful that if the IBEX breaks through the 12K threshold, it would bode for a further run to the 15-16k zone. From there.. perhaps a double top.. before the next financial crisis/bear market.


The economic/societal basket-case that is Greece, saw the Athex gain 6pts (1.1%) to 577. The Feb' 2016 low of 420 is starting to solidify as a key low. First soft upside target is the 750/850 zone.

Broadly of course, the Greek economy remains wrecked. One of the more infamous news stories in recent months is the Greek Govt' are now requiring all citizens to provide a detailed list of their assets, including homes, cars... or anything 'of monetary value'. Its a classic case of a society turning in on itself. Then there is the matter of a reversion from the Euro to the Drachma... it remains a case of when.. not if.


Most world equity markets continue their climb from the Jan/Feb' lows

The US and German markets remain the strongest, with Russia and Greece the weakest.

Most markets have broken outside (if merely sideways) from the downward trends that began in 2014/15.

On balance, it would seem world equities will continue broadly rising into spring 2017.

Looking ahead

A relatively quiet week is ahead. With Monday closed, some traders will no doubt be taking the whole week off to enjoy what remains of the summer.

T - ISM/PMI serv'
W - Fed Beige book (2pm)
T - ECB and BoJ meetings, weekly jobs, EIA report, consumer credit
F - -

*there is a G20 conference in China across Sept'4-5th, and that could see some financial remarks directly impact the Tuesday open.

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In any case....... enjoy the long holiday weekend

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