Everything is highly correlated these days so when 4 major stock market indices are hinting at the same kind of outcome you have to pay attention. I read that as confluence not coincidence.
Stock index #1 – China50
Late March to end April, there were six weeks of stability as China50 stayed range bound. That changed last week with a bearish close for the week’s session. This is a change and could signal downward movement. Will there be continuation/further expansion downward this week is key question.
China A50 weekly chart April 2015 – present
Stock index #2 – DJ30
China A50 is not the only index that is showing resistance, starting to correct. The other giant is the Dow. DJ30 revealed its effective resistance at Q4 2015 high with a failed breakout. The index is now trading below and could go back up for a retest. Failing to break again will embolden bears to test support.
DJ30 weekly chart Feb 2014- present
Stock index #3 – FT100
FT100 is not just back to negative for the year but is that a left-shoulder-head sequence over there? A pullback in order to reveal right shoulder or not but if it does, right shoulder will also tell us where effective resistance is (hint: look at the left).
FT100 weekly chart February 2014 – present
Index #4 – HSI
Coming back to Asia, it is no coincidence that HSI is just sitting there on former 52-week low. With an existing year-year bear trend in place, breaking that support signals the way down is clear.
HSI weekly chart February 2014- present
Tying them together
- At a glance, DJ30 is doing exceptionally compared to Asian indices but that under that outperformance, highly correlated movement is still clear.
- It is possible that all four stock indices are coming down from a top in April.
- This could end in two ways: A) a major rally above this top which in the case of DJ30 maybe to take it to the moon? 180,000? B) a major correction that will not pale to the one that happened in January.
- Traders who want to short should consider the weaker Asian indices. Breaching low will take them to new levels. Shorting the exceptional DJ30 might or might not succeed but this trade should bang right into a host of supports from short term indicators that are still bullish after the steep Feb-Mar run.
4 major stock indices DJ30, FT100, HSI, China50 overlaid
Note: I posted an earlier story on 09 May looking at Asian stock indices only i.e. SiMSCI, China50, HSI and EEM.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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