NIKKEI 225 & EURO STOXX 50

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When Japan’s Central Bank announced its QE program in April 2013 it was a big surprise for the public at least according to the way some of the mainstream media announced it. The Independent wrote “Japan tries shock and awe to jump-start stalled economy”. At the time Japan had already elected a new government which signaled monetary easing.

I reviewed the top 5 names in the widely followed Japanese equity benchmark – Nikkei 225. Most of the names anticipated the monetary easing and broke out of their multi-year base formations. When the QE was announced it was a confirmation for the market rather than a surprise. Below are the top 5 names from the Nikkei 225. Markets are discounting mechanisms.

TOYOTA MOTORS

MITSUBISHI

SOFTBANK

NTT DOCOMO

NTT

When a trade is assigned %100 probability of success, I start getting uncomfortable. I look around and see almost certainty for an event to occur… this becomes a case study for me. European Central Bank’s Quantitative easing is now being announced by the mainstream media as almost a certain event. I reviewed the top names in the Euro Stoxx 50 index to see if the market is anticipating this almost sure event. What I find is a bit different from the Japanese QE announcement. None of the names except UNILEVER is preparing for a breakout. Some of the names are overbought and some are showing significant weakness.

Take this update as a case study and not as a forecast. My conclusion for the top European stocks is that there is no clear anticipation of QE that would spill over to result in further equity gains. Below are the largest market cap stocks in the Euro Stoxx 50 index. I welcome any thoughts on this.

NOVARTIS

ROCHE HOLDING

NESTLE

ROYAL DUTCH

AB INBEV

SANOFI

HSBC HOLDINGS

UNILEVER

MSCI ALL COUNTRIES WORLD INDEX

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This update will cover several markets. There has been significant developments in the first half of January. I’ve given the title MSCI ALL COUNTRIES WORLD INDEX because I think it is one of the most important chart in this update. However, developments in Copper, Palladium and Emerging Markets index are also exciting. Over the past few weeks I’ve updated Tech Charts twitter followers on Copper, Palladium, Light Crude Oil, MSCI Emerging Markets index and some other chart patterns on equities. This will be an update for all followers.

MSCI ALL COUNTRIES WORLD INDEX

MSCI ALL COUNTRIES WORLD INDEX is at a critical juncture. Index covers more than 9000 securities in 46 different Developed and Emerging markets. I find it as a good representation of the global equity market performance. Attached is a monthly scale chart. MACD, which is a momentum and a trend following indicator generated a sell signal in November 2014. Cross-over on MACD is usually the first warning signal for a possible trend reversal. 2-year moving average which acted as a good trend following tool over the past decades is now at 395 levels. Breakdown below 392 (previous low in October 2014) will confirm the medium/long-term correction in global equities. We need to be prepared. This chart is at the top of my watch list.

COPPER

Dr. Copper warned us and I’ve sent several updates on this chart development. Weakness in Copper prices is negative for the global growth. Chart pattern (descending triangle) suggested lower prices below 3 levels. Breakdown was followed by an acceleration on the downside. Descending triangle price target is between 2.10-2.25. 2.10-2.25 area is also the lower boundary of the trend channel. Weakness can continue.

MSCI EMERGING MARKETS INDEX

I study volatility on daily, weekly and monthly scale. A chart with low volatility on weekly and monthly scale is important for me. The longer the low volatility period, the better it is. Because that means there is a lot of energy built in that low volatile consolidation range and a a breakout is usually followed by a strong directional movement. This is the case for the MSCI Emerging Markets Index. Volatility reached multi-decade low levels on the monthly scale chart. A decisive monthly scale breakdown below 900 levels will push emerging markets to lower levels. This is a developing story and should also be watched closely.

LIGHT CRUDE OIL

Mainstream media is talking about $40 oil price. Here is where that level is coming from. $40 is a long-term support/resistance level for the WTI Light Crude Oil. The important question is will it find support at that level? Well, for me the long-term chart is the best available information. In the past buyers/sellers appeared around $35-$40 area. I’ll expect the same. If we see a rebound, the next thing I will check will be how strong the rebound is. A weak rebound that hardly pushes the prices above $50 will signal further weakness for energy prices in the long-term.

PALLADIUM

Last but not least, Palladium. I think the last 2 year’s uptrend has been extremely weak. Price tried to reach 2011 high level and it took 2 years for Palladium to reach that level with a major negative divergence on RSI on the monthly scale chart. October low stands at 725 levels. Breakdown below this level will send prices lower, possibly towards 500 levels.

MSCI ALL COUNTRIES WORLD INDEX

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For those of you who don’t follow twitter, here are some of the important charts that I shared today. Both MSCI ALL COUNTRIES WORLD INDEX and MSCI EMERGING MARKETS INDEX are at critical levels. Multi-year low volatility in equity indices and commodities (metals) suggest we are approaching strong trend periods.

DAX, RUSSELL 2000, NIKKEI, STOXX 50

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Global equity markets are experiencing significant weakness. I shared several updates over the past few weeks and updated the latest charts on twitter. It is important to share these updates with Tech Charts followers on different platforms. I’m adding latest tweets below.

NIKKEI, STOXX and FTSE

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It is the time to take a more defensive stance in the global equity markets. MSCI All Countries World Index which includes the performance of developed and emerging markets, found resistance at 430 levels and reversed. MACD, a momentum indicator is generating a sell signal on the monthly scale chart. These are all bearish signals.

MSCI ALL COUNTRIES WORLD INDEX

STOXX 50 index found resistance at 14 year-long trend line at 3,100 levels. It needed a lot of momentum to clear such hurdle and it looks like the European equity benchmark failed to clear the strong multi-year resistance. Strong resistance remains at 3,100 levels.

STOXX 50 INDEX

Japan’s NIKKEI 225 index failed to clear 16,500 levels, another multi-year resistance. Index can pull back to its 2 year-long average at 14,000 levels. For now the market doesn’t have the strength to clear the strong long-term resistance.

NIKKEI 225 INDEX

UK’s FTSE 100 index reversed from strong multi-year resistance at 6,880 levels. The index failed to breakout to all-time high levels. Resistance remains at 6,880. Breakdown below the 2 year-long average at 6,400 levels can send the index towards 6,000 levels.

UK FTSE 100 INDEX

DAX and RUSSELL 2000

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Both DAX and Russell 2000 indices formed bearish chart patterns. These are developing chart patterns. In other words we still need to see confirmation. DAX is possibly forming a head and shoulder top. Neckline (support) is at 8,900 levels. Decisive breakdown below 8,900 will confirm the year-long top formation on Germany’s DAX index. Head and shoulder tops are bearish chart patterns.

DAX INDEX

Russell 2000 index might be forming a complex double top. 1,080 is a critical level for the index. Decisive breakdown below 1,080 levels will confirm the year-long top formation. These two charts should be on our watch list in the following weeks/month.

RUSSELL 2000 INDEX

UK FTSE 100 INDEX

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Scotland will remain part of United Kingdom following historic referendum vote. What is next for the financial markets? Over the past few weeks we have seen increased volatility in the currency markets. GBP/USD cross rate fell from 1.68 levels to 1.60. It is now rebounding back to 1.645 levels. For the equity markets we can’t say the same. It’s been relatively quiet. UK FTSE 100 index remained below the historical high levels at 6,880. This is a 15 year-long resistance and I believe breakout to all-time high levels will be very positive. Below I shared two charts on the UK FTSE 100 index. A monthly chart that covers the last 25 years and a daily chart that shows the last 2 years consolidation. Over the past 2 years there has been 6 to 7 attempts to clear the  resistance at 6,880 levels. None of them were successful. Both the long-term and the short-term chart suggests a breakout above 6,880 should be powerful and push UK FTSE 100 index higher in the coming months.

UK FTSE 100 INDEX II

Monthly scale chart of UK FTSE 100 index

UK FTSE 100 INDEX III

Daily scale chart of UK FTSE 100 index

STOXX 50, NIKKEI and FTSE 100

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Global equity markets are at a critical juncture. Most of the major equity benchmarks are testing multi-year trend resistances. These are decade-long trend lines and if they are broken on the upside, it will signal further equity market strength for coming years.

STOXX 50 (includes UK companies), an equity benchmark for Europe, is testing 14 year-long trend resistance at 3,100 levels. While breakout would require a significant amount of energy (either positive news flow or expectation of positive economic outlook in the Euro zone), such price action (a decisive break above 3,100) will be extremely bullish for the European equities.

STOXX 50 INDEX

Japan’s Nikkei 225 index is testing a 20 year-long trend resistance at 16,500 levels. Decisive break above the strong multi-decade resistance will be extremely positive for the Japanese equities.

NIKKEI 225 INDEX

UK’s FTSE 100 index is now challenging historical high levels at 6,860. Breakout above the multi-decade horizontal resistance will also be a bullish signal for the global equity markets.

UK FTSE 100 INDEX

Last but not least, MSCI ALL COUNTRIES WORLD INDEX, which is a broad representation of global equity market performance is challenging historical high levels.

MSCI ALL COUNTRIES WORLD INDEX

HANG SENG INDEX

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Over the past 4 years, China has been an under-performer. Chinese equity market has clearly lagged the global recovery. Though, poor performance can end soon. Several Chinese companies are listed in Hong Kong and the Hang Seng Index is ready to breakout from a flat range. Hang Seng index is pushing above strong resistance area between 24,000-25,000. Next price target could be the upper boundary of the trend channel at 28,000 levels.

HONG KONG HANG SENG INDEX

S&P 500, STOXX 50, NIKKEI and FTSE 100

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S&P 500 index cleared its historical high level at 1,580 levels. U.S. equities have clearly outperformed the rest of the global equity markets. So far so good… But without Japan, Europe and UK how far can the positive trend in equities reach? Long-term charts show that Stoxx 50, Nikkei 225 and FTSE 100 indices have reached strong long-term resistance levels. Only after a breakout above these long-term resistances will global equities have more fuel to resume their long-term uptrend. Failure to breakout from these consolidations in the following months can be negative for equity markets.

S&P 500 INDEX

EURO STOXX 50

NIKKEI 225 INDEX

UK FTSE 100 INDEX