Global stock market declines – threatening moving averages
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June 24th, 2009 by Prieur du Plessis, Investment Postcards from Cape Town
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Considerable media coverage has been given to the S&P 500 Index flirting with its key moving averages (remember to poll your vote here). However, it makes for interesting reading also to consider the moving averages of non-US stock markets.
The table below provides a summary of the 50- and 200-day averages pertaining to a number of global indices. The orange shading indicates indices still trading below their moving averages and shows the percentage gain required in order to reach the moving-average line. Conversely, the green shading shows those indices that have already breached the moving averages to the upside and the numbers indicate the percentage decline that will reverse the break.
Click here or on the table below for a larger image.
The 50-day moving average is an indicator of the secondary trend. However, the longer-term 200-day moving average is of more importance as an indicator of the primary trend. Although it is a lagging indicator by construction, it fulfils a useful role in keeping investors on the right side of the long-term trend.
It is important to note that three conditions must be met in order to flash new equity bull markets, namely (1) the index in question must penetrate the 200-day average, (2) the 50-day average must cross the 200-day line, and (3) the 200-day average must turn upwards.
As far as the US markets are concerned, the current situation is that only the Nasdaq Composite Index is trading above both its 50- and 200-day averages, although the other major US indices are mostly either on or within close range of their averages.
Of the other mature markets on the table above only the Copenhagen KFX Index, the Dublin ISEQ Index and the Spanish IBEX 35 Index are trading above both averages. The other indices are a mixed bag, but have mostly started encountering resistance at the averages prior to the declines of the past few days.
Most of the emerging markets are above their respective 200-day moving averages, but a number - Brazil, Russia, Mexico, South Africa, Venezuela, Taiwan and South Korea - have fallen back to below their 50-day lines. In most cases, the 50-day lines are still above the 200-day lines.
Studying chart patterns of the various global bourses leads one to conclude that in the case of most emerging markets base formations have possibly been completed. However, in order to argue that the cycle lows are in, it is imperative that the key 200-day support should hold. As far as mature markets go, the picture will remain inconclusive until the primary trend indicators turn positive.
Dr. Prieur du Plessis is an investment professional with 26 years' experience in investment research and portfolio management. More than 1,200 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns, including his blog, Investment Postcards from Cape Town. He has also published a book, Financial Basics: Investment. Prieur is Chairman and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and a number of foreign countries. He also serves as Honorary Consul of Slovenia for South Africa, actively developing economic, cultural and scientific relations between Slovenia and South Africa. Prieur is 54 years old and live with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily. Read more from the author/contributor here.
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January 13th, 2010 at 12:24 am
Thanks for the information, we will add this story to our blog, as we have an audience in the gold industry that loves reading like this.