When we talk about “stocks”, it can be in reference to many things. Most people like using something like the S&P500 or Dow Jones Industrial Average as a gauge because those are the popular United States indexes which contain many of the world’s largest companies. That’s fair. Depending on what country you live in, your interests are likely to be on your local indexes while you also keep an eye on maybe the United States and/or European Averages. I think it’s important to understand that while these indexes are made up of companies based in local economies, the investors that own those stocks come from all over the world. We live in a global marketplace and I think it would be irresponsible of me as an investor to ignore that.
There are a lot of tools I use to measure the strength or weakness of the overall stock market environment. One of my favorites is a global index I created where I equally weight the largest 10 stock markets in the world. Each country represents 10% of the Allstarcharts Equally-weighted Top 10 Global Index $GLOBE. It includes both Emerging and Developed Markets. So you’ll get Japan, London, Europe, Canada, US but also Brazil and India for example. The entire list is on the chart below:
(click charts to zoom in)
For me it’s hard to be bearish equities as an asset class when we are breaking to all-time highs from a 10-year base. This is an environment where I want to be buying stocks not selling them.
Here is the great part of this chart. If we start to break the lows from last month, we know there is likely something wrong with this trend. We will have to reevaluate any bullish thesis towards equities upon that outcome. The reason I am writing this is because I think that is the lower probability outcome and, in fact, this is evidence that equities as an asset class are likely to break higher.
Why don’t we take these indexes one by one:
In the United States the S&P500 is in an uptrend. The path of least resistance here is still higher as long is we remain above the April lows.
The FTSE100 in London is breaking out of an 18-year base. If prices are above overhead supply from the past 2 decades, this needs to be one of the most bullish developments on earth.
In Japan this looks like the completion of a nice healthy consolidation. Nikkei looks like it is going higher:
Hong Kong is breaking out to new highs. No reason not to think that Hang Seng is not going higher if it is above the 2016 highs:
In Germany the DAX is breaking out above the 2015 highs. I see no reason to think this is not an uptrend going a lot higher:
I don’t like how Australia is just getting to that overhead supply from 2015. It is clear this has not yet been absorbed like in other countries. So if the others continue higher, the likelihood is this will also follow along. That breakout is one to watch for:
Canada is near new highs and is consolidating in what appears to be a healthy digestion of recent gains before the next leg higher:
In Emerging markets China looks terrible. It’s the worst of the entire group, by a long shot.
The Bovespa in Brazil is trying to break out to new highs. I can see this trend resuming higher:
Finally India looks a lot like Germany. We are now breaking out above the 2015 highs and holding above it:
The good thing about these indexes is that we can see where overhead supply is or was. In some cases, like India here above or Germany, we are taking out former highs. In other cases like Canada or Brazil, we have levels that we are trying to exceed. These levels can help with confirmation or warning that we are either correct in our thesis or if a reevaluation is necessary. Being aware of what these individual indexes are doing is important to understand where stocks globally are going as an asset class. I find this exercise to be really helpful.
Join me here to get weekly updates on all of the charts above.