PREAMBLE I usually have a brief summary of International events included in the Redback Weekly Market Summary. This weeks events overseas (Obama and the banks, China reins in lending, etc.) have prompted some commentators to declare that a market top has occurred and that a major correction has begun. So I thought I should look at some international market developments in depth to see the evidence, or is it just media hype and newsletter writers playing on peoples fears to garner new subscriptions?
All charts are weekly charts so I'm looking at the medium to long term.
CHINA
Chinas economy is seen as the major strength in the world economy and of particular interest to Australia because of our dependence on our mineral exports to China.
This week the Hang Seng Index broke below the 30-Week MA (equiv. 150-Day MA) and a key support line.
The weekly MACD has crossed over negatively. The Williams %R (30) is headed south. The Weekly RSI is marginally below 50 the dividing line between bullish and bearish.
This chart is bearish.
JAPAN
Japan has been described by one commentator as a bug waiting for a windshield. Debt/GDP has reached over 200% and increasing exponentially. Some economists believe that an economy cant sustain a Debt/GDP ratio of more than 90% without impacting negatively on economic growth.
The chart has recently reached an important resistance level the gap down made in September 08, which began the worst of the stock market plunge in the bear market. The Tokyo Index has now retreated at that level but not decisively. The chart is still above the 30-Week MA and momentum indicators (RSI, MACD, Williams %R) are still positive.
UNITED STATES
The S&P 500 is in an up-sloping channel and currently testing the lower boundary of that channel. RSI and Williams %R (30) are both still giving bullish readings. The Weekly MACD has crossed marginally below its signal line and the Histogram has a bearish divergence from the chart. The chart is still above the 30-Week MA.
VIX
VIX (Volatility Index) reads inversely to the stock charts. Up is bearish. It is usually considered a leading indicator (inversely) for the stock market.
The down trend line from late-08 has been broken to the upside. The Weekly MACD has broken above its signal line and both the RSI and Williams %R (30) are above their mid-lines. The chart has broken above the 30-Week MA. If the VIX leads the market, then the market is in for a rough ride.
LONDON
FRANCE
CRB The CRB is a composite index charting commodities. (Commodities are usually priced in US$.)
The weekly MACD is still positive as are the RSI and Williams %R (30). The MACD Histogram is showing a negative divergence from the chart and the chart is developing a bearish rising wedge. The chart is still above the 30-Week Moving Average.
INDUSTRIAL METALS
The chart for industrial metals (US$) is often taken as a proxy for world economic growth.
The chart has marginally broken below its up trend line. Momentum Indicators (MACD, RSI, Williams %R) are all still positive. The MACD Histogram has a bearish divergence from the chart. The chart is still above the 30-Week MA.
CONCLUSION
Hong Kong and the Vix are considered leading indicators for the world stock markets. They seem to be signalling the start of a correction. While other charts are looking precarious, they havent broken down decisively.
Is this the start of a major correction? It is simply too early to say. Well wait next week on the third umpires decision.
(20min delay)