Market Insights: Global equity markets' long-term support being tested

Global equity markets' long-term support being tested

We believe that the Global Dow index is one of the best barometers of the state of global equity markets as it is an equally-weighted index of the world's 150 largest stocks.  As you can see from our chart below, the index recently sliced through the uptrend line since the 2012 low and as a result it didn't take long for it to make a beeline to the next major support level.  The index is now sitting just above the very important uptrend line from the 2009 secular low.  In addition, there are three initial retracement levels (used in technical analysis) of the 2009, 2011 and 2013 rallies that are all within a few points of this current level (not shown on the chart).  It takes only a moment to see the importance of this support.  

Will we see a retest of the recent August 24th low?  If history is any indication, a substantial and rapid decline is usually followed by a bounce and then a retest of that low before moving higher once again.  This time may be similar; however, we will be watching this important trendline.  If it breaks, it will be important for the index to move back above that level fairly quickly, and it will be equally important to watch volume and breadth levels to confirm.  It is our base case scenario that we may retest the recent low over the coming days or weeks, however we believe the current long-term bull market is still intact. The main thesis behind this stance, as outlined in a previous post, remains the same.  As always, we are watching our internal indicators and will make adjustments if necessary, with a long-term view in mind.    

 

 

Source: Thomsom Reuters