A Technical Perspective On Major Equity Indices by Jennifer Thomson, Gavekal Capital Blog

It’s pretty easy to get caught up in the daily minutiae of the markets. To get a better look a the forest in its entirety, instead of focusing on details of the trees, we employ a point-and-figure technical analysis program. The time frame of every chart is 1008 days (where data is available, of course) but time is not a variable in the chart itself– the system is really only a function of price or, more specifically, changes in price. In the following charts, each ‘x’ represents a 2.5% relative outperformance while every ‘o’ represents a 2.5% relative underperformance versus the benchmark. A reversal from a column of x’s to a column of o’s (and vice versa) only occurs after a three box or more (7.5%+) change in the opposite direction. This allows us to better see actual signal– instead of noise– in the relative price movements. Of note, all data is converted into USD so all currency effects are embedded in the charts. In addition to providing insight for individual stocks (with which regular readers are already familiar), it also helps paint a high-level picture of aggregate markets themselves.

U.S. Markets have generally outperformed the MSCI AC World Index, led by large-cap stocks. While S&P indexes managed to break out of long-term trading ranges, they are somewhat extended from support which makes them vulnerable to corrective declines.

Equity Indices

 

Equity Indices

Equity Indices

Equity Indices

Equity Indices

Equity Indices

In Asia, Japanese indexes remain in well-established trading ranges, the KOSPI continues in a solid downtrend, and the Chinese market’s breach of the bullish support line (with no support nearby) sets up the potential for major underperformance.

Equity Indices

Equity Indices

Equity Indices

Equity Indices

European markets are also mixed. The Stoxx 600 is trapped in a narrow band going back several years while the U.K.’s FTSE 100 has taken a prolonged tumble and the uptrend in the German DAX appears to be at risk.

Equity Indices

Equity Indices

Equity Indices

In addition to relative strength charts, we can also select an absolute price version. The rules for box size (2.5%) and reversals remain the same– the prices are just no longer relative to those of the benchmark index. As we might expect, these charts are generally more volatile and offer another valuable perspective on the trends in each market.

In the U.S., we get a more detailed look at the strong outperformance (and resulting extended-from-support status) of equities markets. In addition, we would note the consolidative formations that have been in place for some time now. Typically, that type of sideways movement persists until it encounters and tests some form of support– an event that seems to be a ways off for most of these indexes.

Equity Indices

Equity Indices

Equity Indices

Equity Indices

Equity Indices

Equity Indices

The uptrends in the Nikkei and Topix are still intact, but they have yet to definitively break out above overhead resistance. The situation for the KOSPI looks less dire than in the relative strength chart and suggests performance could  find some support. Conversely, the absolute chart for the Chinese index would seem to confirm suspicions that a period of significant underperformance is imminent.

Equity Indices

Equity Indices

Equity Indices

Equity Indices

And, finally, in Europe, these absolute price charts indicate a strong bias toward breakdowns in all equity markets.

Equity Indices

Equity Indices

Equity Indices