S&P 500, Nasdaq, Nifty 50, German DAX See New Highs and Negative Divergence

The technicals for the five major U.S. equity averages began to show signs of stress last week, and the downside risk clearly came through on Wednesday. This decline is being consolidated, but technical damage has been done.

The Dow Jones Industrial Average (INDU) , S&P 500 , Dow Transports and Russell 2000 are below their 50-day simple moving averages. This occurred even after the S&P 500 set its all-time intraday high of 2,405.77 on May 16.

The Nasdaq Composite (NDAQ) also set its all-time intraday high of 6,170.16 on May 16, but could end the week below last week's low of 6,075.68, which is a weekly "key reversal."

Overseas, the Nikkei 225 set its 2017 high of 19,989.94 on May 11, but ended the week with a "key reversal." The Shanghai Composite is below its 50-day and 200-day simple moving averages of 3,191.16 and 3,140.09 and continues to have a negative weekly chart.

The Nifty 50 set an all-time intraday high of 9,532.60 on May 17, and does not have a negative divergence. The German DAX has a positive but overbought weekly chart and set its all-time intraday high of 12,841.66 on May 16. If the DAX ends the week below its low of last week of 12,659.70, this would define another weekly "key reversal."

The Nikkei 25 and the Shanghai Composite remain well below their June 2015 highs of 20,952.71 and 5,178.19, respectively, with the Shanghai Composite deep in bear market territory 40.3% below its 2015 multiyear intraday high.

This Week's Scorecard Through Thursday
This Week's Scorecard Through Thursday

India's Nifty 50 has the largest year-to-date gain of 15.2%, up a notch from 15.1% a week ago. The Nasdaq is up 12.5% year to date, down from 13.6% a week ago. On the weak side of the ledger, Dow transports is down 2.5% year to date, vs. down 0.1% a week ago. Japan's Nikkei 225 is up 2.3% year to date but is 6.2% below its June 24, 2015 high of 20,952.71. China's Shanghai Composite is down 0.4% year to date, and deep in bear market territory 40.3% below its June 12, 2015 high of 5,178.19.

When looking at the weekly charts below, keep an eye on the 200-week simple moving averages shown in green. Investors should consider the 200-week simple moving average as the "reversion to the mean" for each global average.

The "reversion to the mean" is an investment theory that the price of an index, will eventually return to a longer-term simple moving average. A logical choice that's easy to track is the 200-week simple moving average. A ticker trading above its 200-week simple moving average will eventually decline back to it on weakness. Similarly, a ticker trading below its 200-week simple moving average will eventually rebound to it on strength.

Japan's Nikkei 225
Japan's Nikkei 225

Courtesy of MetaStock Xenith

The weekly chart for the Nikkei 225 is positive with the index above its key weekly moving average of 19,287.26. The 200-week simple moving average is the "reversion to the mean" of 17,100.32. Weekly momentum is projected to rise to 65.33 this week up from 56.22 on May 12. Buy weakness to my quarterly value level of 16,876. Sell strength to my annual risky level of 20,169.

China's Shanghai Composite
China's Shanghai Composite

Courtesy of MetaStock Xenith

The weekly chart for the Shanghai Composite is negative with the average below its key weekly moving average of 3,151.22. The 200-week simple moving average or the "reversion to the mean" is a major support at 2,891.51. Weekly momentum is projected to decline to 32.67 this week down from 38.83 on May 12. Buy weakness to my quarterly value level of 2,776. Reduce holdings on strength to my monthly, semiannual and annual risky levels of 3,224, 3,582 and 3,879, respectively.

India's Nifty 50
India's Nifty 50

Courtesy of MetaStock Xenith

The weekly chart for the Nifty 50 remains positive but overbought, with the average above its key weekly moving average of 9,235.01. The 200-week simple moving average or the "reversion to the mean" is a 7,797.76. Weekly momentum is projected to end the week at 88.00, down from 88.16 on May 12, and still well above the overbought threshold of 80.00. Buy weakness to 8,740 and 8,272, which are my monthly and quarterly value levels, respectively. Reduce holdings on strength to my semiannual and annual risky level of 9,431 and 10,545, respectively. This week's strength tested 9,532.60, an opportunity to sell at 9,431 and higher.

Germany's Deutsche Boerse DAX
Germany's Deutsche Boerse DAX

Courtesy of MetaStock Xenith

The weekly chart for the German DAX remains positive but overbought with the average above its key weekly moving average of 12,391.62. The 200-week simple moving average, or "reversion to the mean," is the major support at 10,251.5. Weekly momentum is projected to end the week at 89.04, up from 87.74 on May 23, and above the overbought threshold of 80.00. Buy weakness to my quarterly value level of 9,725. My monthly pivot is 12,486. Reduce holdings on strength to my semiannual and annual risky levels of 12,716 and 12,844, respectively. The recent high of 12,841.66 is between these targets, so reduce holdings.

Dow Jones Industrial Average
Dow Jones Industrial Average

Courtesy of MetaStock Xenith

The weekly chart for the Dow 30 shifts to negative if the average closes the week below its key weekly moving average of 20,732.12. The 200-week simple moving average, or "reversion to the mean," is 17,528.31. Weekly momentum is projected to end the week declining to 66.86 down from 69.92 on May 12. Buy weakness to my quarterly value level of 19,189. My semiannual pivot is 20,893. My annual value level is 15,111. Sell strength to my monthly, annual and semiannual risky levels of 21,279, 22,042 and 22,148, respectively.

S&P 500
S&P 500

Courtesy of MetaStock Xenith

The chart for the S&P 500 will be downgraded to negative, given a weekly close below its key moving average of 2,367.36. The 200-week simple moving average, or "reversion to the mean," is 2,026.57. Weekly momentum is projected to end at 77.96 vs. 77.96 on May 12. A weekly close below 2,367.36 will be a downgrade to negative. Buy weakness to my quarterly value level of 2,225.2. My monthly pivot is a magnet at 2,385.9. My annual value level lags at 1,676.1. Sell strength to my semiannual risky level of 2,492.4. My annual and semiannual risky levels are 2,537.9 and 2,608.9, respectively.

Nasdaq Composite
Nasdaq Composite

Courtesy of MetaStock Xenith

The weekly chart for the Nasdaq remains positive but overbought with the average above its key weekly moving average of 5,981.58. The 200-week simple moving average, or "reversion to the mean," is 4,769.38. Weekly momentum is projected to end the week at 90.80, down from 91.62 on May 12, still well above the overbought threshold of 80.00. Buy weakness to my quarterly value level of 5,512. My semiannual and monthly pivots are 5,946 and 6,045, respectively. My annual value level is 4,331 with annual and semiannual risky levels at 6,253 and 6,387, respectively.

Dow Jones Transportation Average
Dow Jones Transportation Average

Courtesy of MetaStock Xenith

The weekly chart for Dow Transports will be negative if the average ends below its key weekly moving average of 9,047.50. The 200-week simple moving average, or "reversion to the mean," is 8,082.59. Weekly momentum is projected to end down, ticking to 31.87 from 34.64 on May 12. My annual and quarterly value levels are 7,910 and 7,741, respectively. Sell strength to my monthly and semiannual risky levels of 9,918 and 9,980, respectively. Annual and semiannual risky levels are 10,167 and 10,713, respectively.

Russell 2000
Russell 2000

Courtesy of MetaStock Xenith

The weekly chart of the Russell 2000 is negative, given a close on Friday below its key moving average of 1,377.10. The 200-week simple moving average, or "reversion to the mean," is 1,186.62. Weekly momentum is projected to slip to 53.94 this week down from 55.96 on May 12. Buy weakness to my quarterly value level of 1,222.14. My annual value level is 1,091.77. Sell strength to my monthly and semiannual risky levels of 1,439.60 and 1,487.52, respectively. My annual and semiannual risky levels are 1,548.95 and 1,549.50, respectively.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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