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Stocks Article: Global Meltdown Part Two?
Written by article default Wednesday, 02 December 2009 10:53
I am writing this article while in Singapore. This is the third leg of my world trip which has seen me in London and Dubai before concluding in Los Angeles in mid-December. It is refreshing to see the world from outside the United States. As with any type of trading, it is good to gain proper perspective and I am forced to look at the global markets, not just for my CNBC Asia appearances, but for my own trading's sake.Speaking of CNBC, I want to thank Maria Bartiromo for being so gracious as to honor me with a photo opportunity between her interview sessions. She is working from Singapore this week. Perhaps I can persuade her for an appearance on the US shows?
Anyway, I have been looking at the global equity markets and have noticed a disturbing theme amongst most of them. There is inherent weakness and danger to the long side. In the S&P 500 for instance, we haven't been able to make a new high since November 16th. For the last six trading days, we have been forming a basing pattern that has been failing to breach the strong resistance set by the consolidation before the breakdown in late September 2008. Couple this with the negative divergence on many oscillators and momentum indicators alike, sprinkle in a dab of worse than expected economic data figures, and you have the makings of a classic Rally-Base-Drop pattern that we are so fond of trading in Online Trading Academy's Extended Learning Track programs.
Figure 2
Looking across the pond - the FTSE Index is in a similar pattern. As you can see from the chart, there is negative divergence in both the oscillator as well as the momentum indicator. Additionally, the measured move of the inverted head and shoulder pattern terminates at the resistance level reached at 5400.
Figure 3
What about the tigers and dragons of the East? Surely the growth in China and Japan should prevail, right? Well looking at the charts, we see a different story. The Shanghai Composite has been enjoying some tremendous gains recently. In fact, it bottomed in late 2008, well before the US markets. However, it has also been putting in lower highs than the recent August peak and is showing negative divergence in the CCI and the MACD Histogram. We may be in for a retest of the 50 day SMA at 3080 or below.
Figure 4
Figure 5
The Hong Kong Hang Seng is not a refuge for the longs either. More divergence on the indicators looks for the index to retest the 50 day SMA that it had been using as an uptrend line. The entire price pattern is an ascending wedge which has bearish implications. A break of the 50 day SMA also breaks the wedge. Why should we as US market traders care about the Chinese markets? Well, the Hang Seng Index tends to lead US tech stocks and more specifically, the semiconductors. This is a sector that usually helps to lead the recovery effort.
Figure 6
So overall, we may not be out of trouble in the equity markets yet. But fear not, that means opportunity for us traders! Low volume during the shortened holiday trading week will mean some false moves and high volatility, (I am writing this on the Wednesday before the holiday). We should watch closely to see what transpires in the first week of December as the trading volume picks up.
I hope you all had a safe Thanksgiving holiday and lots of great food! I'll be eating duck in Singapore - delicious!