Global Indices Budg(et)ing From Highs

JC Parets
January 25, 2021

In the week gone by, we saw a weakening sentiment develop on the Nifty 50 daily chart. We looked at this through a lens of caution and continue looking for signals that either strengthen or negate this thesis.

At All Star Charts we follow a top-down research approach whereby we track all the asset classes and global markets in order to arrive at our view. In our weekly analysis, we carried out the same process and saw a pattern worth mentioning.

Let's take a look at some charts!

Come mid-January market participants usually discuss several narratives around the market's reaction to the Budget announcement. Any correction or rally is attributed to the outcome of the budget alone. This couldn't be more wrong. The market isn't reacting to the budget, so much as acting despite the budget. We found some evidence to support that.

Going through the global market indices, we came to find that several indices around the world are showing short-term weakening sentiment. Similar to India.

Let's talk about the big one first, the leader of the pack. The S&P 500 has formed a bearish divergence over the past week with the indicator making a lower low, despite price making a higher high.

Click on chart to enlarge view.

Up next we have the Stoxx Europe 600 that covers 90%  of the free-float market capitalization among 17 European countries including large-,mid- and small-cap companies. With this indicating negative divergence over the short term, will the rest of Europe climb higher without a pause? Probably not.

Here we have Norway, Poland, Sweden, and Turkey indicating the same sentiment on the daily chart. As more and more indices suggest the same idea, they reinforce the view of turning cautious, albeit temporarily.

Asia is not far behind with the bearish divergences as well. Here we have China, Japan, Singapore, and Taiwan adding weight to the evidence.

These indices collectively point towards a weakening momentum over the short term time frame. This is a good example of how the top-down approach helps reinforce the data that we see in Indian stocks.

Please note these are daily charts and hence allude to short -term trends. It is important to stress that if you are a long-term investor, then you can sit tight. The long term trends have given no such signs of weakness.

Premium Members must read our post on sector rotation in Indian Stocks to see how we're playing these trends in the face of a correction.

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team

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