[Chart of the Week] The Global Stock Market Breaks Out To All-Time Highs!

JC Parets
February 21, 2017

I'm lucky in that I learned early in my career that we're in a global market place. The United States, while it is certainly important, is just one country within a massive interconnected global market. We see this more and more every day. Many choose to focus on US Stocks, and that's fine. But I think even if that's the case, approaching the market globally is not only an advantage, but becoming more of a necessity with each day that passes.

Today I want to share a chart that really tells an interesting story about what is actually happening in stocks around the world. I've taken the 10 largest exchanges in the world, including both developed and emerging markets, and equally-weighted each of them to create an All Star Charts Top 10 Global Exchanges Index. You can see embedded in the chart, the exact list of components:

GLOBE

Notice how we peaked in October of 2007 and then retested those highs the following summer when some of these markets still had one last gasp of breadth, particularly in Energy and Emerging Markets. This index then peaked near that same level in the Spring of 2015. After 18 months of further digestion of supply, this equally-weighted basket of global indexes is now breaking out through that resistance to new all-time highs.

Anyone who tells you that new highs are a bad thing is lying to you. Stocks in downtrends, by definition, do not close at all-time highs. Watching this massive breakout occurring over the past month is one of the things that has kept me more structurally bullish towards equities as an asset class.

Looking shorter-term, here are prices of this index breaking out above both the Spring 2015 and October 2007 highs. Again, new highs are a characteristic of uptrends, not downtrends. Momentum has not hit oversold conditions in over a year since putting in that bullish divergence in early 2016, which is also a characteristic of uptrends, not downtrends:

GLOBEd

The way I see it, if prices of this index are above the 2007 highs, it is awfully difficult for be to be bearish of equities. I think this is heading another 10-12% higher towards 193,000. Let's remember that this includes, not just the U.S., but Europe, Japan, London, Australia, Hong Kong, China, Canada and Brazil. In my opinion, this is just another feather in the hat for the stock market bulls. From a risk management perspective, if we see the price of this index falling back below the 2007 highs, then we'll have to reevaluate this bullish thesis. I believe this is the lower probability outcome, and a continuation of trend is much more likely. But I pride myself in keeping an open mind and the market has given us a clean level to use as a reference. For now, I still want to be a buyer of weakness, not a seller of strength.

For updates on this chart and each of these markets, sign in or start a risk FREE trial.

Cheers,

JC

Filed Under: