Regular readers will know I rely heavily on technical analysis and reading the charts to assist me in forming my views on global markets. It has definitely helped me navigate the volatility of the equity markets in recent months and steer clear of the downdrafts. Many were taken aback by the sharp -20% plunge in global equities in December. However, a glance at some of the technical charts would have been enough to warn investors of the broad deterioration that was taking place beneath the surface. The information was in plain sight for those to cared to take a closer look.
Roll forward to today, I notice that the percentage of stocks trading above their long-term moving average has increased from just 13% in December last to 36% today. So, despite the recent bounce, the majority of stocks (64%) trading in the S&P 100 Index remain in a bearish downward trends. This could change but for now, caution is still warranted. You will also notice on the chart that the technical indicator $OEXA200R always tends to re-test the low. I think the best outcome for global equity investors would be for a re-test of the recent low in $OEXA200R while the stock index also re-tests the December low, or breaches it slightly, and then resumes the rally. I still think something more sinister is taking shape, but I will be watching closely to see if the selling stops on that re-test.
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