Just 20% Of DM Countries Show Ample Room For Momentum Indicator Improvement by Jennifer Thomson – Gavekal Capital Blog
Most investors are familiar with the technical term “golden cross”, indicating a scenario in which a shorter-term moving average crosses and moves above that of a longer-term moving average. This condition is indicative of positive momentum in the stock or broader market and, as a result, used as a buy signal. Among our index of developed market companies, more than 70% of the issues currently meet golden cross criteria with respect to their 50- and 200-day moving averages.
While the indicator is below the typical extreme of 80%, we would note that the last time it registered a significant overbought signal at that level was (early) 2013. Since then, the overall developed market has given somewhat less emphatic information about whether the market is overbought (at 80% of issues with a 50-day moving average above the 200-day moving average) versus oversold (at just 20% of issues with a 50-day moving average above the 200-day moving average). In other words, this 70% level could be as extreme as we will get this time around.
For a more granular look at developed markets, we survey conditions at the country level. Starting in DM Americas, we find that both Canada and the U.S. have surged to the 80% extreme. The prices of their respective indexes have risen concurrently but have languished since.
In DM Asia, we find much of the same–with the notable exception of Japan, where further expansion of the number of issues with a 50-day moving average above that of the 200-day moving average seems likely.
Finally, in DM EMEA, we find a much more mixed result, with only about 1/3 of the countries at or above the 70% level reached by the developed market in general. Denmark stands out as the sole country to have exceeded 80% of issues with a 50-day moving average above that of the 200-day moving average. The bulk of the European countries (Spain, Switzerland, France, Germany, Netherlands, Sweden, and Austria) remain in the 50-70% range. The U.K., Portugal, Italy, and Ireland have the lowest percent of issues– less than 50% and, in Ireland’s case, just 30%– with a 50-day moving average above that of the 200-day moving average. Unless we are looking at a 2007/2008-like scenario (where the percent of issues rose to the midpoint and promptly plummeted back to extreme lows), this variable would seem to indicate that equities in these four countries have the greatest chances for improved momentum over the next few months.