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During the past month or so, the financial markets around the globe have been anything but kind to investors. When perusing the landscape, whether it be Europe, Asia, Middle East, North America, or South of the Border (South America), both investors and traders have felt the wrath of Mr. Market. It seemingly appears as if the “fuse” has been lit causing a spark that has provoked not just isolated flames, where containment is manageable, yet potentially more alarming, widespread brush fires, whereby someone in the crowd screamed, “Fire” as the masses have seen fit to “shoot first” and “ask questions” later with a mad dash to the exits. One may be wondering, why and who struck the match that ignited the recent selling pressure throughout the world’s equities markets? Is the recent action merely a dose of profit taking from greener pastures, or has the world’s structural imbalances finally caught up with reality? Could it be the ongoing troubling geopolitical concerns, or is $70 crude taking its toll? Finally, could the reckless and irresponsible behavior (massive liquidity infusion) of worldwide central banks be the culprit? While all of the questions posed above will undoubtedly provoke a vast array of theories and responses, it just may be that a bit of all of the above and others, are the causes for the current climate. Nevertheless, while we’d all like to believe that we can put our finger on the pulse and diagnose the patient, seldom does the marketplace accommodate. Thus, we must be willing to cast aside our personal beliefs and opinions and direct our attention to the true measure and indicators, the charts, in order to gain an objective and unbiased perspective. Below we show the 2-Year daily charts of the S&P 500, DJIA and COMP. It’s quite apparent that the layman’s eye can detect that the short-term trend is lower, evidenced by the breaching of the 200-day moving averages of all three indices. However, one can also see that the pattern of higher highs and higher lows remains in tact, for now. Therefore, while the short-term trend is weak, the intermediate- term trend has yet to confirm, at least at the moment.
What would turn the intermediate-term lower? Should all three indexes violate their October ’05 lows, then the pattern of higher highs and higher lows would be broken, hence the change in trend. Stay tuned. Moving our attention across the globe, let’s take a peak at some of the 2-Year daily pictures from various worldwide markets starting in Europe:
And Asia:
Down Under (No pun intended):
South of the Border:
Based on the charts above, it’s fairly apparent that the US markets are seemingly lagging, or should we say, leading the southside shuffle having decidedly breached their all important 200-day MA’s. Furthermore, while Asia and Europe have joined the party, Australia, Brazil and Mexico are seemingly on their way. With the short-term landscape in an oversold state, one cannot rule out the possibility of some summer fun. As the temperatures rise, will the hoses be brought out to water the grass and perhaps douse the existing brush fires? Such is yet to be determined. Nonetheless, should such scenario develop and a bounce in worldwide equities markets ensue, both investors and traders would be wise in monitoring the strength of any such event for clues as to whether the flames have been extinguished or, will we witness further downside testing, most notably, the October ’05 lows? The forthcoming weeks and months ahead should prove interesting. While the summer season usually brings upon a mild and relaxing atmosphere in the markets, the recent action in the VIX may be indicating otherwise, as it seems to have finally awoken from a multi-year nap, thus potentially producing further heightened volatility. Prudence, caution, and preservation of capital remain paramount in this challenging environment!!
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INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
