Chart Library High Low Filter
There has been a great deal of volatility on global stock markets of late with a number of indices entering corrective phases. In an effort to put this action in perspective I created a section in my Favourites and put every country index in it. I then used the Filter System’s High/Low function to identify those markets which have hit new highs and lows in the last five days. Here is a pdf of the results.
There are a lot fewer markets hitting new highs than lows. If you strip out China then the list of highs is heavily populated with indices representing countries either experiencing chronic inflation or outright currency devaluation. Today is a big day for Chinese equities with MSCI’s decision to admit A-Shares to the Emerging Markets Index due after the close in New York.
Among major global indices the Russell 2000 hit a new 1-month high last week as it continues to pause above the 2014 congestion area. A sustained move below the trend mean would be required to begin to question medium-term demand dominance.
The list of indices making new lows is much longer than the list of highs but it is also worth noting that only three are posting new lows beyond three months. These are India, Indonesia and Kenya. The fact that only one index is making new 12-month lows is a testament to the fact that the vast majority of global stock market indices have been rallying for a prolonged period and that the recent deterioration is for the most part a reversion to the mean. Nevertheless, this is no time for complacency.
The potential for Grexit to cause an upset is still not an outcome that can be dismissed. The relative weakness of emerging market currencies versus the Dollar is an additional cause for concern and rising bond yields have the potential to inhibit the flow of liquidity to stocks. At this point monitoring the consistency of the trends is more important than ever.
For example Australia’s ASX 200 continues to extend the fall below its trend mean in what has been a relatively choppy uptrend. It is approaching the next area of potential support but need to hold the medium-term progression of higher reaction lows if medium-term for higher to lateral ranging is to be given the benefit of the doubt.