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Global Stock Markets Are Still Above Key Supports

Since July 2014, global stock markets have tumbled due to geopolitical risks in Ukraine, the on-going conflict seen in the Gaza strip, Argentina sovereign debt crisis and most recently, the outbreak of the Ebola virus. All these negative news have led a loss of 2% to7% across the board. Breakdown of performance according to the different region’s Exchange Traded Funds (ETF) listed on NYSE and NASDAQ will be as follow:

Performance Table (24 July 2014 to 07 August 2014)

SPDR S&P 500

-3.84%

SPDR Euro STOXX 50

-7.49%

MSCI Japan

-3.06%

MSCI Asia ex Japan

-1.83%

SPDR S&P Emerging Latin America

-4.19%

MSCI Emerging Markets

-3.65%

Figures are from www.stockcharts.com

Based on the above table, we can clearly see that the Asia ex Japan region has outperformed the rest of the world which is the theme that we mentioned in the start of 2014 and stressed again in my global stock market outlook for the second half of 2014.

But the most important question in our mind now is when will the current plunge stop and will it lead to another 10% decline? The answer this golden question, let us take a look at the long-term (weekly) charts of the major stock indices.


The Nikkei 225 is trading within a complex range configuration in place since June 2014. The key support zone is at 14600/14300 (lower boundary of the complex range & multiple Fibonacci retracement from various degrees) which is only 3% away from the current price.


Hong Kong's Hang Seng Index (HSI) has managed to stage a bullish breakout for its long-term resistance at 24100/24000 and the current decline has managed to stall at this former resistance now turns support region of 24100/24000.


The Singapore's Straits Times Index (STI) has also pull-back towards the former key resistance now turns support at 3265 with the 50-week Moving Average acting as a floor at 3187. In addition, the RSI oscillator remains above its support and 50% level without any bearish divergence signal.


The S&P 500 is now testing its key support at 1900/1890 with the Stochastic oscillator right at its trendline support where the market managed to stage a rebound in the past.


The European market is the weakest as compared to the rest of the world. The German DAX has tumbled severely and is now right at the lower boundary of the ascending channel and 9100/8900 key support region. However, no clear bullish reversal signals have been sighted yet.

U.S. Sectors & Intermarket Relationship with the VIX

The current sector leaders of the U.S. stock market are Technology (XLK), Healthcare (XLV) and Materials (XLB) and their current price actions are now back towards their respective supports as highlighted on the above charts.

The VIX aka the fear index which measures the implied volatility of the S&P 500 has an inverse relationship with the S&P 500. For example when the VIX spikes up, the S&P 500 will stage a decline.

The VIX has managed to stage a strong rebound from the “greed zone of 12.80/10.10” in late July 2014 which explains the recent “nasty drop” seen in the S&P 500. However, the VIX is still being capped below its key resistance at 18.05 and formed a weekly “Doji” candlestick pattern. From an intermarket relationship perspective, the current decline seen in the S&P 500 is likely to see a loss of downside momentum at this juncture.

Conclusion

Global stock markets are at or coming close to their respective significant support zones (see summary table below):

Market

Support Levels

Nikkei 225

14600/14300

Hang Seng Index

24100/24000

Singapore STI

3265/3187

S&P 500

1900/1890

DAX

9100/8900

Global stock markets may see a bullish reversal at this juncture as long as these support regions hold. Indeed, interesting times ahead.

Charts are from City Index Advantage Trader & eSignal

Disclaimer
The information contained in this material is intended for general circulation only.  It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs.  Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.  All queries regarding the contents of this material are to be directed to City Index Asia Pte Ltd. 

 

kelvin_wong
Kelvin Wong, CFTe

Chief Technical Strategist (Asia), City Index

Kelvin is professional technical analyst with extensive experience in stock indices, equities and foreign exchange. Kelvin employs a combination of fundamental and technical analysis and specialises in utilising Elliot Wave and Fibonacci analysis to pin point potential reversal levels in the financial market. Prior to joining City Index, Kelvin has traded actively and provided investment advisory for institutional traders/investors such as Deutsche Bank, Credit Suisse, ANZ and Goldman Sachs. He has also conducted technical analysis related trading workshops and seminars for thousands of private traders in Singapore and Malaysia.