So far this year, volatility has been quite high as investors respond to high levels of inflation around the world, central bank policy tightening and another wave of coronavirus. We have seen some global indices fall sharply, especially in the US, while others have continued higher or consolidated. US technology and small cap shares have taken the brunt of the sell-off due to rising bond yields, while banks and industrials have outperformed. So, it has been quite a mixed start to the new year. With some of the major indices now testing key support levels, it is possible we may be heading for a period of relative calm as dip buyers take advantage of downbeat stocks and sectors.
Below I have shared several charts of the major indices. In a nutshell, it looks like markets in China and Hong Kong are showing potential bottoming signs following months of underperformance. The PBOC has started to loosen its policy again, which explains part of the reason for this. Meanwhile, hopes that the global economy will rebound after the latest wave of coronavirus should lead to higher levels of demand for Chinese exports. Elsewhere, the UK’s FTSE is continuing to outperform Europe, thanks to its high concentration of banks and resources stocks that tend to do well when yields are on the rise. Mainland European indices appear to be consolidating in bullish continuation patterns. Germany’s tech index has possibly created a false breakdown bullish reversal pattern. US indices look the weakest, although the Dow and Nasdaq have both bounced off their respective key support levels and 200-day moving averages, with the latter having fallen 10% from its record high. But with the upcoming technology sector earnings, some investors are undoubtedly looking for at least short-term dip-buying opportunities.
Without further ado…
The FTSE is making higher highs and higher lows. It looks like investors are targeting the previous years’ highs:
The TecDAX index has bounced sharply after briefly breaking its old low, thus forming a possible bottom sign (false break):
The DAX itself is holding its own above the 200-day average and consolidating inside a falling wedge pattern, which is a bullish continuation pattern. Will we see a breakout?
The Europe Stoxx 50 index is showing a similar pattern as the DAX (above) and other mainland European indices: bullish consolidation. Here’s how the daily looks like:
The S&P 500 is testing horizontal support around 4530, but with the bullish trend line broken, the US benchmark index doesn’t appear as bullish as some of the indices above.
The Russell is also not looking very strong, having broken support around 2100. The bulls will need to reclaim that level and 2150ish before this market looks bullish again.
The Nasdaq 100 is bouncing right where it should: 15,000. This area marks the convergence of 200-day average with the previous breakout area. Are we going to see the bulls return here?
The Dow is also bouncing from its 200-day average. Given the stronger performance of industrial stocks around the world, the DJIA could potentially form a base here:
The Hang Seng index has broken above its bearish trend line after spending several months in a downtrend. This is potentially the start of a strong bull trend:
The FTSE China A50 index, which bucked the bullish trend for global markets last year, is starting to look promising again:
The resources and financial heavy S&P/ASX index is also bouncing off its 200-day and back side of the broken trend line. It needs to rise back above the 21-day exponential to trigger a bullish signal.
Just to make a point that not all indices have been selling off, have a look at South Africa’s SA40 index below!