I've actually been quite looking forward to doing this. I have always been more interested in the grand picture of the markets, rather than in the usual day to day noise/nonsense. I have added a few more indexes to my own watch list - the Spanish IBEX, the Italian Borsa, and the Greek wheelbarrow (or whatever its called).
There is a market outside of New York City.
The USA remains the leading equity market – at least for now, but there are many other markets that a good trader should also be aware of. This first post will take a look at 10 of the big world indexes (the dow'30 will be included).
We'll take a look at the overall trend for each, and try to conclude where we are, and where we might be headed.
All charts are monthly candle type, and cover a 20 year time frame (currently as far back as stockcharts provide).
*I had considered adding the Indexes for the other 3 BRIC countries (Brazil, Russia, India) , but I will leave that for another post. They are economies that are still very different from the western world, and thus arguably should be kept separate.
Okay, lets look at the ten markets....
Greece – the Athex'60
If there is one index that illustrates what 'end of the world' looks like, its the Greek market. From a high of just over 6000 in late 1999 – with a slightly lower high in 2007 of 5000, we are now at the near apocalyptic level of 750. In just 4 years this market has lost around 85%. There really isn't much left of it.
The implications of leaving the Euro, with a subsequent devaluation would be astounding. With further declines to say..500...and a 50% devaluation across 1-3 years, the Greek index could fall to the equivalent of around 250..maybe even under 100 if the new Drachma subsequently failed.
France – CAC'40
Looks much like the Greek index, has suffered a 45% fall since 2007. Considering the state of the French/European economy a break above 4000 looks unlikely. A break under 3000 would likely take the CAC to 2500. If the European mess does unravel, then the CAC could be expected to briefly test the 2000 level.
Germany – DAX'30
The German economy is the strongest of the EU, and thus its not entirely surprising its one of the better performing indexes. Yet even the DAX is lower than the 2007 high. A failure to break above the wedge of 7500 would be a real concern for the bulls. A break under 5000, and that would be a critical 'WATCH OUT...trouble ahead!', with a likely test of the 2009 low. A collapse of the EU itself would likely take the DAX back to 2500. Unthinkable to many..but that would be the level to look for.
United Kingdom – FTSE'100
Much like the German DAX, a cleaner wedge..and is currently at resistance. A break above 6k would be bullish, a break under 5250 bearish – with a test of 4750 – if failed, then free fall to 3500.
Hong Kong – Hang Seng'48
A huge decline since the 2007 peak of 32000, but still some 100% higher than its 2009 low of 11000. The Hang Seng faces a big problem at the 22/23,000 level. So we're very close to determining where the mid term will go. A break back under 16k would bode for scary times with a move back to at least 13,000.
Spain – IBEX'35
With some of the highest jobless numbers in the western world, the Spanish economy is already way past the basket case stage. The index is still 50% below its 2007 high, and although the last 9 months show some good support, there is going to be severe resistance at the big 10,000 level A break under 7500 opens up 7k, if that fails...then free-fall to 5k. The EU imploding would likely take Spain back to 3k.
USA – DOW'30
Ahh yes, the mighty DOW. One of the worlds strongest indexes (probably due to all that paper printing!), we're less than 2000pts from the high. The current trend is certainly upward, and there would be wedge/channel resistance at the 14500 level – interesting double top possibility huh? A break under 11k would be a real issue, and that would open up10k – the 200 MA. If that failed to stop the selling, then a move to the channel line around 7500/8000 in late 2012/2013 would be the best target for the doomers.
Italy – Borsa'40
One of the PIIGS, and a real threat to EU stability in the next year. This index is still 65% lower than the 2007 high! The current trend is a clear wedge, a break above 20k would be a massively bullish. A break under the recent low of 12750 would be bearish.
Japan – Nikkei'225
The nation of Japan remains in a long term depression, the late 1980s high of 30000 is a distant memory, and we're 65% below that. We could be in a bull flag right now – the 2009 low of 7k looks good, but a move under 7500 by end 2012 would cancel the flag. A move under 7k would possibly occur if the populace awaken from the delusion that 'everything is gonna be alright'. The demographic disaster of Japan can not be overstated. The nation is quite simply dying out through lack of babies! The fact they are chronically indebted (even if it is to themselves), only adds to the problem.
China – the SSEC'50
China, having seen a literal transformation from traditional agrarian economy to full speed rampant capitalism in just 3 decades, is still massively higher than its mid 1990s low of 300s – currently almost 9 times higher, yet is still around 55% lower than the 2007 bubble peak.
The China index is showing severe resistance against the wedge, a break over 2750 would be bullish. Only a clear break under 1600 would suggest a possible challenge to test the 1000 level.
Indexes - Summary
Greece: End of the world down trend continues...likely to lose another 75% of current value
France: Overall down trend since 2007, looking for a failure around 3500, then break 2750
German: showing some strength, a break above 7500 would be significant.
UK: at critical resistance, must break higher within 1-3months, or 20% decline viable
Hong Kong: approaching critical wedge apex, currently showing slight weakness
Spain: still weak, a failure to clear the 10MA would be severely bearish, with 40% decline
USA: still trying to battle back to the 2007 bubble peak, but a possible H/S formation is bearish
Italy: general decline, possibly failing at the 10MA, 20% fall would be very viable
Japan: long term decline, but 2 year bull flag offers promise in near term
China: declining, but could easily break higher, and significant upside is possible
Many indexes are still massively lower than their 2007 bubble peaks. Many markets are also at, or near critical wedge resistance levels. The unravelling of the European Union – via 1 or more of the PIIG nations quitting the Euro would be the ideal catalyst that the doomers are clearly looking for.
China and Germany are the stand-out markets. Both have more soundly manufacturing based economies, and would likely do well across the longer term. The USA – despite being one of the strongest markets out there, is likely a result of the Bernanke money making machine, that has helped to prop up asset prices across the board.
The rest of 2012 will be very fascinating to see play out. Will the Euro zone hold together – with at least some moderate level of growth – in which case indexes could all break up and out of their wedges, with a strong end to 2012. Or will any of the bigger PIIGs default, and/or leave the Euro/EU, with resulting capital flow mayhem?
I hope those ten charts helps emphasise the bigger picture, not least the point that we are nearing a critical time where we'll either see much stronger equity prices, or declines of somewhere between 20-40%.