Global Stock Markets – Positive Breadth
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June 26th, 2009 by Prieur du Plessis, Investment Postcards from Cape Town
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In order to measure stock market breadth, I find it very useful to monitor the percentage of stocks in the S&P 500 Index (or on the Nasdaq or New York Stock Exchanges) trading above their 50- and 200-day moving averages. These measures serve as yardsticks of the direction of the secondary and primary trends of the broad market.
In the same way as one applies this methodology to the constituents of a specific index or stock exchange, one can also consider the percentage of country indices trading above their respective averages. I am somewhat restricted as far as with data are concerned, but have managed to include 26 mature markets and 23 emerging markets in the research sample.
The chart below shows the percentage of countries in the overall group trading above their 50- and 200-day lines respectively. Interestingly, the majority of the markets (87%) are trading above the 200-day average - an indicator of a bullish primary trend. As far as the secondary trend is concerned, 68% of the countries are still trading above the 50-day average, having corrected from an overbought level of 100% a few weeks ago.
Click on the images below for larger graphs.
When considering developed and emerging markets separately, similar patterns emerge, although a larger component of developing markets (95%) is in primary bull markets (see charts for emerging markets below).
In short, based on the 200-day indicator global stock markets in general are trading in bullish territory, but the 50-day indicator signals that the secondary correction might not have played itself out fully yet. However, as always, one should be careful to base decisions on a single tool.
I am about to catch a plane to Europe, but will do more work to refine these indicators upon my return.
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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Tags: Base Decisions, Broad Market, Bull Markets, Cape Town, Constituents, Emerging Markets, Global Stock Markets, Graphs, Indices Trading, Market Breadth, Mature Markets, Methodology, Moving Averages, Nasdaq, New York Stock, New York Stock Exchanges, Postcards, Stock Exchange, Stock Market, TargetPosted in Emerging Markets, Markets |
