Every week, we review the global financial markets through the lens of technical analysis.
Interestingly enough, last week was highly volatile in global equity markets but relatively calm in bonds currencies and commodities.
As scary as it felt, last week was a typical washout in sentiment in equity markets indicating the high probability of a strong bull phase for global equities ahead with numerous BUY signals in Asian markets.
In commodities, OIL delivered a strong SELL signal while GOLD completed a solid base. Buy PLATINUM
In currencies, the Turkish Lira and the Indian Rupee are delivering strong BUY signals and the US Dollar is still very much in a Bull trend.
The Chart of the Week
Crude oil recorded a significant top the week before and last week’s -4.4 % fall points to a bear phase towards 65 and 57. SHORT OIL !
Last week’s global correction in equities was the worst global correction since 2016 taking all equity markets down by 4 % on average apart from India and Indonesia.
Most equity indexes are now in negative for the year with some having reached bear market territory.
The key question is whether this is the beginning of something more serious or just a sharp correction cleaning the froth and speculation of some of the major markets.
We lean towards the latter and see last week’s events as a sharp reminder that the longest bull market in US history is long in the tooth and part of a major topping out process that will see the entire 2009- 2018 bull market end in the first quarter of 2019.
We identify BUY signals in many equity markets, BUT THE TRUE MESSAGE of the 78 charts that we analyze every week is
SELL NORTH AMERICA and BUY ASIA
World Equity Indexes
MXWO – MSCI World Index
The daily chart of the MSCI World Equity Index reveals that global equity markets have broken their 2016 uptrend and all their moving averages last week, sending a clear long term negative signal with the formation of a lower high after the one recorded in January 2018.
However, the index is deeply oversold, and rebounded on the multiple lows recorded in the first quarter of 2018. Trading BUY
MXEF – MSCI Emerging Markets Index
The MSCI emerging market has finally recorded the trend-ending wash-out that usually marks the end of a bear phase. Emerging markets have been in a bear market since January 2018, having lost 26 % of their value. Selling is clearly exhausted and the MACDs are forming a BUY signal.
Expect a sharp rebound in the coming weeks and a break above the 2018 downtrend would constitute a massive long term BUY signal. ACCUMULATE
MXAP – MSCI Asia Pacific All Country Index
The MSCI Asia Pacific has recorded a trend-ending wash-out that usually marks the end of a bear phase. Asian equity markets have been in a bear market since January 2018, having lost 20 % of their value. Selling is clearly exhausted and the MACDs are forming a BUY signal.
Expect a rebound in the coming weeks and a break above the 2018 downtrend above 165 would constitute a long term BUY signal. ACCUMULATE
USA – Dow Jones Industrial Index
The Dow Jones fell sharply last week and formed a very negative long term configuration in the form of a failed break to new highs and a clear double top that will be difficult to surpass in the future.
The MACDs are forming a sell signal as well
However, it failed to break below the 2018 downtrend and its short term moving average and closed above them on Friday, indicating that we are still technically in a bull phase. Moreover, there is strong support at the lows of 2018 and the 2016 uptrend.
Take advantage of a rebound in the coming weeks or months to bail out of major US stocks. Only a decisive break below 23’700 would signal the beginning of the bear market that we expect to unfold in 2019.
SELL ON STRENGTH
USA – Standard & Poors 500
The technical picture of the larger SP500 is the same as the one of the Down Jones Industrial. SELL ON STRENGTH
What these charts are telling us is that the period of outperformance of the US equity markets is ending and they should outperform significantly in the coming bull phase.
USA – Nasdaq 100 Index
The fall in the Nasdaq has been sharper last week, particularly in the leading stocks. The 2018 uptrend is clearly broken, The Index is still highly overbought and a clear SELL signal has been confirmed on the MACDs.
The index is sitting on the double support of the 2016 uptrend and the moving average and must rebound clearly from here.
A last bout of individual investors optimism could take the index to a new high in the coming months, but the performance will be limited.
SELL ON STRENGTH
A break below the 7000 level would be outright negative. Watch
USA – Russell 2000 Index
BAD NEWS ! Last week’s sharp fall in the US small cap universe tells the story of the extremely poor internal dynamics of the US equity market.
Contrary to its large caps equivalent or the Nasdaq, the larger US market has clerkly broken below the 2016 uptrend and its moving average and has not really rebounded on Friday, confirming the fact that individual investors have been selling stock positions while hedge funds have been buying the larger indexes through the future markets.
Individual investor;’s confidence has been seriously dented and the Russell 2000 is now down 11 % from its July peak.
Last Week’s close is a clear Long Term SELL signal.
Canada – TSX Index
Ouch ! Canadian stocks are looking ugly and last week confirmed the end of their bull phase. A failed new high and a clear double top have been formed and the break of the 2016 uptrend and of BOTH moving averages points to more weakness in the long run.
There is strong support at the 15’000 level and we could be entering a wide horizontal consolidation between 15’000 and 16’500 if the market rebounds on the 15’000 support. AVOID if you cannot trade it actively.
Mexico – MEXBOL Index
Not Good ! The optimism triggered by the new NAFTA agreement was short lived and Mexican Equities broke below their two moving averages which are delivering a “Death Cross”.
The MACD are delivering a clear SELL signal.
There is strong resistance at the 50’000 level, but also significant support at 46’000. AVOID for now.Brazil
Brazil – IBOV Index
Brazil closed marginally higher after a bout of strength following the presidential elections and a sharp fall on Thursday. But the configuration remains positive for now. BUY
European equity markets are all in an established bear trend, but last week’s sharp fall may mark the beginning of the end of the bear phase.
Europe – Eurostoxx 50 Index
The succession of lower lows since the middle of 2017 and last week’s confirmation that the 2016 uptrend has become a significant resistance is not a good omen for the European Large cap Index.
The Index is framed in a descending channel the lower boundary of which was tested last week. A strong rebound is to be expected next week, but a clear bottom must be recorded and only a clear break above the 2018 downtrend will indicate that things are changing.
Long term investors can start Accumulating at current levels as there is strong support at the 3000 level.
Europe – BE500 Index
Last week’s price action was truly negative for the larger Bloomberg European 500 Index. The 2016 uptrend was broken decisively as where the moving averages. The 248 support did not hold.
However, there is a very strong support level at the 220/230 area which should provide a good entry point in European equities. ACCUMULATE on Weakness .
UK – FT100 Index
Last week was a major break below the 2016 uptrend but also a typical trend-ending phenomenon. The 7’000 level constitutes a strong support and we expect a somewhat positive outcome for the BREXIT negotiations that should end this week-end. Trading BUY
Germany – DAX 30 Index
The all-important 12’000 support level was broken last week and the 2016 uptrend has become a clear resistance for now. The lengthy topping out processing place since the middle of 2017 points to further weakness ahead in the long term. AVOID
France – CAC 40 Index
A sharp breakdown last week with the first close below the long term moving average since 2016. The index failed to hold above the 2016 uptrend and to pass the 5’500 level.
However, the 5’000 level should constitute the basis for a rebound next week as it constitutes the lower boundary of the horizontal consolidation channel in place since 2017. Trading BUY
Switzerland – SMI Index
Last week’s sharp fall negated all the positives built by the Swiss market in the past few weeks and in particular the higher low recorded in August.
Accumulate at 8’500
Spain – IBEX 35 Index
There does not seem to be an end to the bear trend in Spanish equities which are now in bear market territory with a 20.5 % fall since their May 2017 peak.
However, last week wash out was compulsive and the current area of 8’700 – 8’900 constitute a strong support with accumulation. ACCUMULATE
Italy – FTSE MIB 30 Index
Italian shares were hammered last week and are getting heavily oversold.
The bear trend is still very much in place and was confirmed by the inability of Italian shares to hold above the moving averages.
However, we are nearing the end of the Bear phase.
Wait for a clear bottom before entering
Portugal – PSI 20 Index
Oops ! A very negative close last week below the long term moving average for the first time since 2017. Accumulate at 4’500
Greece – ASE Index
Last week’s sharp move down was clear trend-ending washout in Greek equities atet are now trading on the long term support in place since 2016.
The index is oversold. We see little downside left and the probability of a sharp rebound is high. ACCUMULATE
Russia – IMOEX Index
Russian equities held well and rebounded sharply on Friday despite sharply lower oil prices. Although a top is in place, as long as the Index holds above the 2’400 level, Russian equities are on a bull trend. HOLD
Turkey – Istanbul BURSA Index
Turkish stocks staged a strong rally oil Friday and was one of the few equity markets to close the week in positive territory as the American Pastor that was the cause of the American sanctions was freed and sent back to the USA.
The configuration remains positive. HOLD
Dubai – DFMG Index
Despite all the batches of bad news about Dubai real estate, over leveraged companies and last week’s Pakistani announcement that over US$ 15 Billion of tax evasion money had found a home in Dubai properties, the Dubai Index is holding very well and consolidating its bottom after the lengthy bear market in place since 2017. BUY
Saudi Arabia – Tadawul Index
Last week’s events relating to the Saudi journalist apparently tortured and killed in the Sadi Consulate oil Istanbul has sent shivers to the Saudi equity market and seriously dented Mohamad Bin Salman’s hold on power.
The negative weekly close constitutes a lower high. SELL
Japan – Nikkei 225 Index
Japan remains in a strongly positive configuration and last week’s sharp fall was as much due to contagion as to a stronger Currency.
Indeed a double top has been marked but Japanese equities are still very much in an uptrend and the close above the 2016 uptrend and the moving average is positive. BUY
Japan – TOPIX Index
The Japanese Topic sharp move down last week marked a lower high and brought it back within the consolidation triangle in place since January 2018. It held nevertheless above the horizontal support and the long term moving average.
A strong bounce next week would be a very positive signal . BUY
Japan – JASDAQ Index
Last week’s hanging hammer is a very positive signal and confirms that the bear market in Japanese smaller capitalization stocks is over.
The MACDs are delivering a strong BUY signal
China – CSI 300 Index
Far from negating the positive outlook for Chinese equities, last week’s sharp fall after the holiday week confirmed the solid bottoming out of Chinese equities and lays the foundation for a very significant rally ahead.
The MACDs are confirming their BUY signal. STRONG BUY !
China – Shanghai Composite Index
There again, the ability of Chinese shares to rebound and close above the lower boundary of the long term channel is a very positive signal. The MACDs are confirming the BUY signal. STRONG BUY !
China – FT 50 China Index
The log term support and the previous lows held while the MACDs confirmed the BUY signal. The daily price action of the past week showed without a doubt that foreign investors had been shorting the market massively every day while domestic investors were accumulating during the day. STRONG BUY
China – HSCEI Index
Despite the hedge funds attempts to take the HSCEI index lower all week, it closed above the previous lows while the MACDs are confirming the BUY signal. STRONG BUY
Hong Kong – HSI Index
Although the Hang Song Index is still in a bear trend,Last week’s price action is a typical trend-ending acceleration that points to a change of trend very soon. Selling pressure seems to be exhausted. ACCUMULATE
Taiwan – TWSE Index
After having held up all 2018, Taiwanese stocks took a beating in the past two weeks, falling by 7 % last week alone as hedge funds shorted the index and domestic investors finally got scared. The technical damage was substantial as the Index close below its two moving averages and below the 10’500 support.
However, last week’s close smacks of an ending phenomenon and we expect the index to rebound next week. SELL on Strength
India – SENSEX Index
India was one of the very few markets to close positively last week and the correction that started in August is probably over. The Index stil holds above the 2016 uptrend and has corrected some of its over valuation. Accumulate
The Philippines – PCOMP Index
Last weeks, The Filipino stock index recorded a trend-ending hanging hammer AND marked a double bottom. BUY
Indonesia – JCI Index
Indonesia also closed in positive territory last week, confirming that there is not much selling pressure left. It also held above the previous lows recorded June and August 2018. However, we would prefer to see Indonesian equities trading above 6’100 before investing. Watch
Malaysia – KLCI Bursa Index
Malaysia equities fell sharply last week but rebounded strongly on Friday, recording a double bottom and indicating that they should rebound this week. However, the close below the long term moving average and a SELL signal forming on the MACD point to a sideways trading pattern before the 2018 downtrend is finally broken. Accumulate
Thailand – SET Index
Thai equities were little affected last week although they closed under the short term moving average. The configuration remains positive. BUY
Singapore – STI Index
Singapore’s equities sold off sharply last week resuming the downtrend in place since May 2018. Avoid for now
Vietnam – VNIN Index
Despite a strong close on Friday, Vietnamese stocks failed to close above the short term moving average and a minor SELL signal is forming on the MACDs. A lower high may have formed and a quick and clear break above 1013 is needed to resume the uptrend. We expect the 900 level to be tested and to hold on the downside.
Volatility was low in the currency markets considering the sell-off in global equities. The US dollar held above its key levels. The global uptrend in the US dollar is still in place.
Emerging markets currencies are bottoming out globally and provide an entry point in many markets.
DXY – US dollar Index
A neutral to positive configuration for the DXY Index which closed above 95 and the long term moving average. Stay Long
CNY – Chinese Yuan
The Yuan sold-off last week as hedge funds shorted the currency again trying to take it to 7. China has no choice but to ease monetary policy and the interest rates differential with Us rates has all but disappeared.
However, the World Bank and IMF annual meetings of this week-end in Bali Indonesia finally put the real issue on the table calling for a resolution of the US – China trade dispute and a strengthening of the Yuan. BUY
EUR – Euro
The EUR was supported by the mild US inflation data and the strong German inflation data released on Thursday, but failed to gain traction.
The next move is down
JPY – Japanese Yen
As always at times of equity volatility and risk-off mood, Japanese Yen shorts are being unwound and the currency appreciates. Last week move amounts to a clear reversal, however, the close above both moving averages and the secular downtrend indicates that the 110.5 level will hold and that the JPY will resume its downtrend soon.
GBP – Sterling Pound
Last week;’s move in GBP is clearly bullish. The currency closed marginally higher, above the Long term moving average and the MACDs are confirming the clear Long term BUY signal.
The Brexit negotiations keep a lid on the British currency despite strong economic and inflation number.
Expect a sharp move up in the near future
TRY – Turkish Lira
The events that took place in Turkey last week changed the entire dynamics of the Turkish-US relationship which led to the sanctions against Turkey. ERDOGAN has probably realized that he was better off with the USA than against and the freeing of the American Pastor sent the Turkish Lira sharply higher, confirming that the currency should appreciate form here. The break below the 6 level is very positive. BUY
RUB – Russian Ruble
The ruble closed the week marginally stronger and the the uptrend – (downtrend) in place since March has clearly been broken. BUY
INR – Indian Rupee
The Indian rupee marked a significant top last week and is more oversold than at any time in the past. Although the downtrend is still in place, we see the move nearing its end and time has come to re-build positions in India in our view. Accumulate
IDR – Indonesian Rupee
There again, the Indonesian Rupee is attempting to mark a top form extremely oversold levels. The downtrend is still in place but we a re nearing an entry point. Watch
CL1 – Crude Oil
Oil lost 4 % of its value last week marking an important top after a failed attempt at a new high.
The Saudi potential implication in the disappearance of Jamal Kashooggi in Istanbul could be a game changer in the US – Saudi relationship as well as in the Saudi leadership itself. Oil has been pushed up artificially by OPEC since 2016 against the rationale of the supply-demand equation.
The dynamics of the Oil uptrend are weakening and although the uptrend is technically still very much in place, we have more and more signs that we are nearing an important inflexion point. Short Oil Strategically
XAU – Gold
BUY GOLD ! Last week move up was a clear break out form the consolidation that has been in place since July after the sharp fall since March and the MACDs are delivering a clear and unequivocal BUY signal.
XAG – Silver
Silver held ground above the long term support and recorded a hanging hammer last week. The Bear phase is ending. Accumulate
HG1 – Copper
The technical configuration of Copper is neutral to negative in the short term. It held its grounds last week but failed to climb back above the Long term moving averages, while the short term moving average is clearly rolling over.
The correction since June 2018 is normally a re-tracement of the 2016-2018 but phase before the second leg of the secular bull market resumes, but only a clear break above 286 would confirm the end of the re-tracement.
XPD – Palladium
Palladium is overbought and is clearly trying to challenge its all-time highs of 2018 and 1999. August’s strong monthly move is a definitively positive sign but we would wait for a clear break above 1100 to be long at this stage.
XPT – Platinum
BUY PLATINUM. Last week’s rise was a very positive signal and the MACds are confirming a significant long term BUY signal. The February – September bear phase is Cleary over a new bull leg has started.
From a longer term perspective, Platinum is probably nearing the end of the massive Bear phase in place since the 2008 peak at 2300 which corrected all the excesses of the hype of the catalytic exhaust pipes, and is laying the foundations for a new secular advance.
KC1 – Coffee
The sharp rebound that we have been predicting is in full force and Coffee gained 7 % last week, confirming the solidity of the 100 level support. The 2017 downtrend is being tested and the next target is 125.
From a longer term perspective, it is too early to call te end of the 2012 – 2018 bear market, but a bottoming out process is in the making before a strong advance in the coming months.
SB1 – Sugar
As we predicted, Sugar is clearly ending the bear phase in place since 2016 and the downtrend has been broken. More advances are to be expected with an initial target of 14.5. Stay Long
LB1 – Lumber
Lumber is extremely oversold and due for a sharp bounce at some point. A little more downside is possible towards 300 but the gap at 400 will have to be filled at some point in the near future. Trading BUY
The fall in equity markets stopped the rout in the US Government bond market. Yields fell by 7 basis points on average last week and we may have reached a temporary floor under bond prices for the coming months.
Longer term, the picture has not changed and US bond yields are clearly heading higher. In the short term, 30 year bond yields should fall back towards 3.20 / 3.25