Global Market Losing its Brea(d)th

JC Parets
June 17, 2022

Time and again, we've been referring to how Nifty50 has been displaying more resilience compared to its international counterparts. While the Indian markets have come under heavy pressure this week, global markets have been reeling under that pressure for longer.

So today, we're here to provide a perspective of where the global indices are, just to get an idea of the kind of market environment we're in.

We've been talking about how the stock market has been bearish rather than bullish for quite some time now. I still get asked a lot as to whether we're finally in a bear market. My only response is that we've been in a bear market set up for much longer than the last few weeks. When there are more stocks adding on to the new lows list consistently, than the new highs list, there is no way we're in a bull market.

What about the global indices then? Are more indices making new lows, moving sideways, or holding up their levels?

Let's take a look, shall we?

Here we're looking at breadth charts along with the All Country World Index (ACWI). This index follows the investment results of large and mid-cap stocks in developed and developing markets.

The ACWI has been under a lot of pressure since the US Dollar Index rally took center stage. Here is a closer look at the trend.

We're tracking the percentage of world markets above their 50-day moving averages and the percentage of world markets above their 200-day moving average. The 50-day moving average gives us an idea about the short-term trend and the 200-day moving average alludes to the long-term trend.

So what do we have here? Since the beginning of 2022, the All Country World Index has been making lower highs and lower lows. The list of countries breaching support zones has since been expanding. Over the last week, we got a sharp reading come through in the percentage of world markets trading above their 200-day moving average. And what does that mean? It means that the line chart (the bottom pane) is trading at multi-year lows. A paltry 6% indices are currently above their 200-day moving averages.

Where would this number be in a bullish scenario? You'd need at least 50% indices above their 200 DMAs.

Click on the image to zoom in.

The percentage of 52-week lows and 6-month lows have been expanding too. Notice that we've been getting consistent readings of close to 40-50% of new 52-week and 6-month lows among the world indices.

Over a shorter time frame, that number jumps up to 80-90% of world indices making new lows. This of course is due to the selling pressure that made its way into the market in the week gone by.

But the important aspect to focus on is that there are new lows being marked on account of long-term support levels being breached. These areas of support will now act as resistances due to the principle of Polarity. For the market to move past these resistances, the momentum would have to be strong. And for that to unfold, the Dollar Index will have to hold its horses.

So far though, there is no such indication of a turnaround. As evidence suggests, the risk-off sentiment is here to stay.

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

Allstarcharts Team

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