Charts Show Confused Global Stock Averages This Post-Brexit Week
Before Britain voted to leave the European Union last week, the nine major equity averages around the world were on the cusp of having negative weekly chart profiles. Stock market strength around the world going into the June 23 vote anticipated a "stay" vote. This optimism turned on a dime.
When the "leave" vote won, global equity averages began a two-day plunge. After paper losses estimated at more than $3 trillion, the markets rebounded as the first half of 2016 came to an end on mid-year window dressing.
Note that most of the specific stocks bought as the second quarter ended where companies that pay solid dividends. Many off these set all-time or multiyear highs on June 30. This is a warning of "risk-off" by investors.
The market bulls seem to think the U.S. is immune to any negative effects of Brexit saying it may take a year or two for the U.K. to actually leave the E.U. Judgment tells me that a structural change in world order and changes to international trade agreements is not a positive environment for economic growth. This indicates the risk of a global bear market for stocks as early as the second half of this year.
Warning flags include the strong performances of "flight to safety" investments:
- The yield on the U.S. Treasury 30-year bond plunged to 2.247% on Wednesday, reaching my target range for all of 2016 of 2.265% to 2.228%. This yield plunged further on July 1 setting a new all-time low of 2.189% versus my new key level of 2.150% in play until the end of the third quarter.
- Comex gold stayed above its 200-week simple moving average of $1,308.8 after trading as high as of $1,362.6 on June 24. My key level for July is $1,276.44 and my target by the end of 2016 remains $1,639.9.
- The Dow Utility Average ended Thursday at an all-time high of 716.57 in bull market territory up 24% year to date.
- Nymex crude oil dipped to $45.83 on June 27 after trading as high as $51.67on June 9. My annual pivot remains $44.07 with key levels of $51.26 and $57.18 as the best case highs for the remainder of the year.
- The euro plunged to 1.0909 on June 24 versus the dollar with my annual pivot of 1.1052. The euro is on the cusp of its 200-day simple moving average of 1.1095. The upside should be limited to 1.1777 in the second half of the year.
There are warning flags for the nine global equity averages that are tracked around the world.
- All five U.S. major averages have declining weekly momentum but significant declines on July 1 are required to result in negative weekly charts at the closes on Friday, July 1. The key weekly moving averages are; 17,697 for the Dow Jones Industrial AverageI:DJI , 2,072.1 for the S&P 500 I:GSPC , 4,818 for the Nasdaq CompositeI:IXIC , 7,603 for Dow transports and 1137.90 for the Russell 2000. Transports is the only one of the five below its key weekly moving average.
- The Nasdaq is still well below its price gap to its Dec. 31 low of 5,007.01.
- The Nikkei 225 remains in bear market territory with a negative weekly chart. The Shanghai Composite has not recovering from its crash of 2015 and the Aug. 24, 2015 "Black Monday" and the flash crash that morning in the U.S.
- The Nifty 50 has a positive but overbought weekly chart and had just a brief hiccup on Brexit.
- The German DAX has a negative weekly chart and is in bear market territory.
The only major average that has not passed its one-year anniversary of its all-time high is the Nasdaq with its all-time intraday high of 5,231.94 set on July 20, 2015.
Here's this week's scorecard for the major global equity averages.
Here's the daily chart for Japan's Nikkei 225.
Courtesy of MetaStock Xenith
The Nikkei 225 ended June at 15,575.92 down 18.2% year to date and in bear market territory 25.7% below its multiyear high of 20,952.71 set on June 24, 2015.
The horizontal lines are the Fibonacci retracements of the decline from the June 24 multiyear high to the Feb. 12 low of 14,865.77. The rally off the low set a 2016 high 7,613.56 on April 25. The average fell below its 23.6% retracement of 16,297.64 on June 13 then tested the low with a slightly lower low of 14,864.01 on June 24. My proprietary analytics show risk to 11,424.43 by the end of 2016.
Here's the daily chart for China's Shanghai Composite.
Courtesy of MetaStock Xenith
The Shanghai Composite ended June at 2,929.61 down 17.2% year to date and in bear market territory 43.4% below its multiyear high of 5,178.19 set on June 12, 2015.
The horizontal lines are the Fibonacci retracements are from the multiyear high of 5,178.19 set on June 12 to the Jan. 27 low of 2,638.30. The Chinese benchmark has been below its 23.6% retracement of 3,237.02 since Jan. 8. This index has not seen much volatility so far in 2016 and has been snaking around its 50-day simple moving average of 2,894.35 since March 17.
Here's the daily chart for India's Nifty 50.
Courtesy of MetaStock Xenith
The Nifty 50 ended June at 8,287.75 up 4.3% year to date and up 21.7% since its Feb. 29 low of 6,825.80. The average is 9.1% below its March 4, 2015 high of 9,119.20.
The horizontal lines are the Fibonacci retracements are from the March 4 high to the Feb. 29 low. India's benchmark had been trading around its 61.8% retracement of 8,242.86 between June 3 and June 23, then dropped to its 50% retracement of 7,971.96 on June 24 on Brexit volatility. This blip lower was short-lived as Thursday's close was back above the 61.8% retracement. My proprietary analytics projects risk to 6,151.07 by the end of 2016, a level not seen since February 2014.
Here's the daily chart for Germany's Deutsche Boerse DAX.
Courtesy of MetaStock Xenith
The German DAX ended June at 9,680.09, down 9.9% year to date and in bear market territory 21.9% below its all-time high time high of 12,390.75 set on April 10, 2015.
The horizontal lines are the Fibonacci retracements from the all-time high to the low of 8,699.29 set on Feb. 11. Germany's benchmark was above its 38.2% retracement of 10,108.46 on June 23 before the Brexit votes were counted. After the "leave" vote this average plunged to 9,214.10 on June 27 then recaptured its 23.6% retracement of 9,569.08 on Thursday. Note the huge price gap to the June 23 low of 10,104.92. My proprietary analytics show downside risk to 7,940.74 by the end of 2016.
Here's the daily chart for the Dow Jones Industrial Average.
Courtesy of MetaStock Xenith
The Dow 30 ended June at 17,929.99 up 2.9% year to date, and 2.3% below its all-time high of 18,351.36 set on May 19, 2015 and is 16% above its Jan. 20 low of 15,450.56.
The horizontal lines are the Fibonacci retracements from the all-time high to the August 24 low of 15,370.33. The Dow 30 declined 5.3% from its June 23 Brexit close of 18,011.07 to the June 27 low of 17,063.08. On June 27 the Average was below its 61.8% retracement of 17,215.03. The Dow is just 0.5% below the June 23 close.
Weekly closes above July's key level of 17,277 indicates upside potential to 18,177 in the third quarter but the downside risk remains 14,592 by the end of 2016.
Here's the weekly chart for the S&P 500.
Courtesy of MetaStock Xenith
The S&P 500 ended June at 2098.86 up 2.7% year to date, and 1.7% below its all-time high of 2,134.72 set on May 20, 2015 and is 16% above its Feb. 11 low of 1,810.10.
The horizontal lines are the Fibonacci retracements from the all-time high to the 2016 low. The S&P 500 declined 5.8% from its June 23 Brexit close of 2,113.32 to the June 27 low of 1,991.68. On June 27 the Average was below its 61.8% retracement of 2,010.88. The S&P 500 is just 0.7% below the June 23 close.
Weekly closes above July's key level of 2,013.2 indicates upside potential to 2,125.2 in the third quarter but the downside risk remains 1,632.8 by the end of 2016.
Here's the daily chart for the Nasdaq.
Courtesy of MetaStock Xenith
The Nasdaq ended June at 4,842.67 down 3.3% year to date and 7.4% below its all-time high of 5,231.94 set on July 20, 2015.
The horizontal lines are the Fibonacci retracements of the decline from the all-time high to the Feb. 11 low of 4,209.76. The Nasdaq set its 2016 high of 4,980.14 on June 6, below the price gap to the Dec. 31 low 5,007.01. The Nasdaq declined 6.8% in reaction to Brexit and was below its 38.2%% retracement of 4,600.36 at the low of 4,574.25 on June 27. The rebound was a return to the 61.8% retracement of 4,842.60. The Nasdaq is 1.4% below the June 23 close of 4,910.04.
Weekly closes above July's key level of 4,628 indicates upside potential to 5,214 in the third quarter but the downside risk remains 4,248 by the end of 2016.
Here's the daily chart for Dow Transports.
Courtesy of MetaStock Xenith
The Dow Transports ended June at 7,485.13, down 0.3% year to date and nearly in bear market territory 19.6% below its all-time high of 9,310.33 set on Nov. 28, 2014. Transports is also 16.9% above its Jan. 21 low of 6,403.31.
The horizontal lines are the Fibonacci retracements of the decline from the all-time high to the 2016 low. Transports set its 2016 high of 8,149.00 on April 20 shy of its 61.8% retracement of 8,200.77. On May 15 the average held its 38.2% retracement of 7,512.76 and rebounded above its 50% retracement of 7,856.77 June 8. Transports slumped by 8.4% following the Brexit vote to a low of 7,029.41 on June 27, then rebounded to 7,485.13 on June 30 below its 38.2% retracement. Transports are 2.4% below its June 23 close of 7,671.53.
Weekly closes above July's key level of 7,082 indicates upside potential to my annual pivot of 7,569 with a maximum upside to 7,938 in the third quarter but the downside risk remains 6,926 by the end of 2016.
Here's the daily chart for the Russell 2000.
Courtesy of MetaStock Xenith
The Russell 2000 ended June at 1,151.92, up 1.4% year to date and in correction territory 11.1% below its all-time high of 1,296.00 set on June 23, 2915. The small cap index is 22.1% above its Feb. 11 low of 943.10.
The horizontal lines are the Fibonacci retracements of the decline from the all-time high to the 2016 low. The Russell 2000 set its 2016 high of 1,190.17 on June 8. Small caps slumped by 7.4% following the Brexit vote to a low of 1,085.88 on June 27 then rebounded to 1,152.03 on June 30. The June 27 low was above the 38.2% retracement of 1,077.62 and the June 30 high was below the 61.8% retracement of 1,161.04. The 50% retracement of 1,119.33 has been a volatility magnet. The Russell 2000 is 1.7% below its June 23 close of 1,172.22.
Weekly closes above July's key level of 1083.10 indicates upside potential to my quarterly pivot of 1,133.16, while the downside risk remains the 1042.61 to 938.79 range by the end of 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.