Global indices: crack under bear attack

It wasn’t just the Indian market that suffered at the hands of the bears. Global indices cracked as well, even the few that have been showing remarkable resilience so far.

Our trouble-shooting Finance Minister was quick to state that Indian markets were only feeling the effect of a global sell-off, and there was no reason to panic. Those are mere words to shore up our falling market.

The time for soothing words is long over. It is time for action. Tough policy decisions – however unpopular – need to be taken and implemented. Soon. Bears are about to take complete control.

Here are the 6 months closing chart patterns of a few global market indices:

Shanghai Composite China

The Shanghai Composite index has been trading sideways ever since it dropped below the 200 day EMA back in Apr ‘10. It has once again dropped below all three EMAs. Last Friday’s fall has no special significance for a index already struggling to keep the bears away.

Australia All Ordinaries

The Australia All Ordinaries index has been in a down trend since Apr ‘11. The ‘death cross’ of the 50 day EMA below the 200 day EMA in Jun ‘11 confirmed a bear market. Friday’s panic selling has pushed the index deeper into bear territory.

DAX Germany

Except for a few days in Mar ‘11, the DAX index had been in a bull market – trading above a rising 200 day EMA - till Jul ‘11. The index slipped below the 7000 level and the 200 day EMA on Mon. Aug 1 ‘11, and continued to fall through the past week. The ‘death cross’ will confirm a bear market.

Madrid General Spain

The Madrid General index has been in a bear market since May ‘11, making a pattern of lower tops and lower bottoms. Things were bad. They have just turned worse.

IBOVESPA Brazil

The IBOVESPA index has been trending down in a bear market since Apr ‘11. Last week’s selling has pushed the index below a downward sloping channel.

MERVAL Argentina

The Argentine MERVAL index had been trading with a slight downward bias, but stayed above a rising 200 day EMA till Jul ‘11 (except for a few days in Jun ‘11). Friday’s huge drop has changed the equation in favour of the bears.

Are the PIIGS stock market indices ready for slaughter?

Europe’s economic recovery has been largely restrained by the PIIGS countries. Greece is almost a basket case. Ireland is not far behind. Their stock index chart patterns reflect the sorry state of their economic affairs. Portugal, Italy and Spain seem to be tottering on the brink.

Spain (Madrid General)

Spain’s Madrid General index has been struggling to stay above its 200 day EMA. Each foray above the long-term moving average has met selling pressure. The index appears to be consolidating within an ascending triangle since June ‘10, with progressive higher bottoms and a flat top around 1135. The technical indicators are bearish, so the down move may last a bit longer.

Greece (Athens General)

Greece’s Athens General index started a rally in Jan ‘11 that took it above the 200 day EMA after 9 months. But the rally fizzled out after touching a high of 1747 in Feb ‘11. Note that the 50 day EMA didn’t even move up close to the 200 day EMA, and the bear market has resumed in right earnest. The technical indicators are looking very bearish.

Ireland (Dow Jones Ireland)

Ireland’s stock index is working hard to remain above its 200 day EMA. A steady rally from the low of 165 in Aug ‘10 to the high of 196 in Feb ‘11 faced strong selling pressure and dropped to a low of 173 in Mar ‘11. A ‘V’ shaped recovery took the index to a lower top of 193, where a sideways consolidation has started. All three EMAs are bunched together and the technical indicators are hinting at a continuation of the rally.

Italy (Dow Jones Italy)

Italy’s stock index is technically in a bull market, but facing strong headwinds. After touching a low of 141 in May ‘10, the index has been in a bullish pattern of higher tops and higher bottoms. The technical indicators have turned weak, and a test of support from the rising 200 day EMA is likely.

Portugal (Dow Jones Portugal)

Portugal’s stock index is also in a bull market technically, but after reaching a peak of 214 in Nov ‘10 it has been trading within a bearish pattern of lower tops and lower bottoms. The 200 day EMA is still rising, but the index closed just below it. The technical indicators are bearish, which means the correction may continue for some time.

European Index Chart Patterns – 1 year charts

The 5 years European index chart patterns – except Stockholm General and DAX - were struggling around their 50% Fibonacci retracement levels and 200 day EMAs when I looked at them earlier this month.

Things appear to have improved since then – if not in the respective economies, definitely in the stock market sentiments – as the 1 year charts depict below.

Austria ATX Index Chart

The Austria ATX index chart is above its three rising EMAs, and has made bullish higher tops and bottoms since the Jul ‘10 low. Crossing the Apr ‘10 top will put the bulls back in the driver’s seat.

France CAC 40 Index Chart

The CAC 40 index chart has been one of the laggards. Despite the wide-scale protests against the austerity measures, the index is showing bullish tendencies as it makes higher tops and bottoms. The RSI is indicating that the going will not be very smooth for the bulls.

Germany DAX Index Chart

The DAX index chart continues its impressive performance – receiving support from the rising 200 day EMA. The German index has been in a bull market for more than a year, and keeps making new highs – reflecting a stronger economy.

Netherlands AEX General Index Chart

The AEX General index chart hasn’t been able to make too much headway. It has been trading between 300 and 360 for the past year, but remains above the rising 200 day EMA – the sign of a bull market. The RSI indicates that the current correction may last a little longer.

Oslo All Share Index Chart

The Oslo All Share index chart has just edged above the Apr ‘10 top and the bull market is expected to gather strength. The lower top on the RSI means there may be speed bumps along the way.

Madrid General Index Chart

The woes of the Madrid General index chart are far from over. The brief bullish aspirations seem to have been snuffed out by the plummeting RSI. The Spanish index remains the underperformer among the European indices.

Stockholm General Index Chart

The Stockholm General index chart – the best performer – is facing a bit of headwind after touching the 350 mark. The negative divergence in the RSI may cause a deeper correction. The rising 200 day EMA has provided good support during earlier corrections. There is no immediate threat to the bull market.

Swiss Market Index Chart

The Swiss Market Index chart is faring marginally better than the Madrid General, but remains an underperformer. For the past 6 months, the 6500 level has provided strong resistance.

UK FTSE 100 Index Chart

The FTSE 100 index chart made a valiant but unsuccessful effort to get past its Apr ‘10 top. The recently announced austerity measures seem to have dampened the bullish fervour. The RSI has slipped below the 50% level and is showing negative divergence. The bears may tighten their grip. The index is well above the rising 200 day EMA, so there is no immediate threat of a trend change.

Bottomline? The 1 year European index chart patterns are suggesting that the various austerity measures will strengthen the economies in the long run, but will act as a deterrent to faster growth. The gains from the markets are likely to be muted. Time to take a look at emerging market investments?

European Index Chart Patterns – 5 year charts

The European index chart patterns are struggling around the 50% Fibonacci retracement levels of their entire bear market falls. That means, technically, they are still in long-term bear markets. Some are trading above their 200 day EMAs, in an effort to return to a bull market. Here are the 5 year charts of some of the European indices.

Austria ATX Index Chart

The Austria ATX index is just above the 200 day EMA, but is one of the worst performers of the European indices. It has failed to get close to the 50% retracement level of its bear market fall. The long-term moving average is drifting downwards.

France CAC 40 Index Chart

The CAC 40 index, like the Austria ATX index, has been scraping bottom – failing to regain even 50% of its bear market fall. The 200 day EMA has started to slip down, and the index is likely to follow.

Germany DAX Index Chart

The DAX index chart is moving up above a rising 200 day EMA – sign of a bull market. It has moved past the 50% retracement level of its bear market fall, but is well below its 2007 top. Crossing the 2008 top of 7000 will be the first priority to restore the bullish health of the index.

Netherlands AEX General Index Chart

The Netherlands AEX General index chart is trying hard to reach the 50% retracement level of its bear market fall – trading just above a flat 200 day EMA. The index has been trading in a sideways rectangular band of about 50 points for a year now. Such a long sideways consolidation could lead to a strong break out upwards.

Oslo All Share Index Chart

The Oslo OSEAX index chart has exactly retraced 50% of its bear market fall, and is trading above the 200 day EMA. The index has been trading in a 70 point sideways channel for the past year, and is likely to break out upwards.

Madrid General Index Chart

The Madrid General index chart is one of the underperformers – along with the Austria ATX and France CAC 40 index charts. The index is about to drop below the flat 200 day EMA and remains in a long-term bear market.

Stockholm General Index Chart

The Stockholm General index chart is back in a bull market – making higher tops and bottoms above a rising 200 day EMA. The Swedish index is one of the better performers, along with the German DAX index.

Swiss Market Index Chart

The Swiss market index chart has slipped below the falling 200 day EMA. It managed to retrace 50% of its bear market fall before dropping down. The index is one of the underperformers among the European indices.

UK FTSE 100 Index Chart

The FTSE 100 index chart is making a determined effort to fend off the bear grasp – but hasn’t been too successful so far. London is still considered by some to be the financial capital of the world. The FTSE 100 chart seems to be singing the Gershwin song: It ain’t necessarily so.

Bottomline? The 5 years European index charts are showing the clear effects of the economic downturn. The quantitative easing programmes haven’t worked very well so far. The Swedish and German markets are showing promise. The Oslo All Share and the Netherlands AEX indices can also be considered for investment. The rest should be avoided till they show signs of recovery.

Stock Index Chart Patterns - FTSE 100, Swiss Market, Madrid General – Sep 03, '10

FTSE 100 Index Chart

Just when the bears were getting ready to take the FTSE 100 index to lower depths, the bulls executed a neat bear-trap. Volumes were good on Tue. Aug 31, ‘10 but the resistance from the confluence of the three EMAs stalled the day’s rally.

On Wed. Sep 1 ‘10, the index jumped above all three EMAs and closed at the highest point of the day, but on lower volumes. Volumes dwindled as the FTSE 100 rose higher. The index closed with a weekly gain of 224 points at 5428 – its highest close in nearly 4 months.

The three EMAs are still entangled and the index has moved well above them. But the decreasing volumes during the week’s rise is a concern. The slow stochastic (above its 50% level), the MACD (positive and above the signal line) and RSI (above its 50% level) are all looking bullish – but made lower tops as the index moved higher. Only the MFI (also above its 50% level) rose higher with the index.

Unless there is follow-up buying next week, the rally may not proceed very far. But the momentum has swung towards the bulls for now.

Swiss Market (Switzerland) index

My first look at the Swiss Market (Switzerland) seems auspicious. The index closed more than 100 points higher on a weekly basis and bang on the 6400 level – its highest close in more than 2 months. More importantly, it moved above the 200 day EMA, after remaining below the long-term moving average for 10 weeks.

Volumes peaked on Wed. Sep 1, ‘10 but dropped on the next two days as the index moved higher. Negative divergences are clearly visible in all the four technical indicators – which made lower tops while the Swiss Market moved higher.

The technical indicators are mildly bullish. The slow stochastic and MFI are both above their 50% levels. The RSI is at the 50% level. The MACD is negative, but above the signal line.

The 50 day EMA is below the 200 day EMA. The 20 day EMA is below the 50 day EMA, though it is trying to move above the medium-term moving average. The bears hold the advantage.

The Apr 15 ‘10 top of 6991 is the barrier the bulls need to cross for the index to re-enter a bull market. Doesn’t seem an easy task at this stage.

Madrid General (Spain) index

The Madrid General (Spain) index is in the midst of a similar, yet less convincing, bull rally. It closed 46 points (4.4%) higher on a weekly basis, and above the 200 day EMA, but is yet to cross its Aug ‘10 high of 1133.

The 20 day EMA is above the 50 day EMA, but both are below the 200 day EMA. The bears hold the advantage, though the technical indicators are turning bullish.

The slow stochastic, RSI and MFI are above their 50% levels. The MACD is touching the signal line in negative territory. Note that all the four indicators made lower bottoms in Aug ‘10 than the ones made in Jul ‘10, while the Madrid General index made a higher bottom. The negative divergences could put a quick end to the bull rally.

Bottomline? The European indices are fighting hard to get out of tight bear grips. The bears have weakened a bit, but have retained their hold. The worst isn’t over yet for the European economies, and the charts are reflecting that. Very selective buying in the FTSE, and a ‘hold’ in the Madrid General and Swiss Market advised.