The Week Ahead: Are Global Markets Warning Investors?
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The stock market recorded another nice week of gains as the burst of upside momentum was needed to confirm the February bottom (The Week Ahead: Is There Blood In The Streets Yet? ) as the major averages are now back to more important resistance. Some may forget that just three weeks ago the S&P 500 hit 1810 and it has now moved above the 2000 level .
Most have not forgotten the angst of the January drop in their stock portfolios and while those that held on have now recouped some of their losses those who sold during the decline are now facing a tough decision. I was not expecting the extent of the stock market drop at the start of the year but the technical readings and very negative sentiment by January 15h convinced me that selling into the decline was not the best strategy.
A week after the January lows I was looking “for a rally to the $198-$200 area”. I had concluded that ” the recent drop does not seem like the first phase of a new bear market” and that stabilization ion crude oil should help fuel a significant rebound. It is important for investors to remember that after the 21.6% correction in 2011 the S&P 500 took six months before it again made new highs. Patience is still a key trait of successful investors.
Ever since the NK225 topped in 1989 I have urged investors to regularly follow the major overseas stock markets even if they are only investing in the US stock market. For more active investors the country specific ETFs that I monitor for the Viper ETF clients often offer some good profit opportunities. Several of these ETFs have now given intermediate term buy signals and I will be looking to recommend them on the next correction.
In today’s column I will look at the technical outlook for three of the key global stock markets. Since the June 2012 low the Dax Index has typically been stronger than the S&P 500 on the rallies and has often topped out before the S&P. From the October 2014 low the Dax Index gained 48% before topping out in April 2015. The S&P 500 rose just 17.2% from the October 2014 low and peaked in May, a month after the Dax .
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From the April 2015 high to the February lows the Dax has dropped 29.8% as the decline has been much worse than that of the S&P 500. Never the less the Dax appears to be holding above the major 50% retracement support from the 2011 lows at 8663. The weekly chart shows a well defined trading channel, lines a and b, as the lower boundary was almost reached on the last drop.
The weekly MACD-His has formed a potential bullish divergence as it has formed higher lows, line c, while the Dax has formed lower lows. In order to confirm the divergence and to signal an important low the MACD-His needs to move above the late 2015 high (key resistance on chart). The Dax has major resistance now in the 10,500-11,000 area.