The correction in late February succeeded in pulling a number of markets back towards their 200 day moving averages but only a few major markets actually touched them. Two notable examples were the UK's FTSE 100 and India's Sensex. France's CAC 40 came very close and a number of others such as the USA's S&P 500, Switzerland's SMI, Germany's DAX and Brazil's IBOV approached the moving average but we couldn't really say that they tested it. Markets such as China's Shanghai A-Shares, Singapore's STI, Australia's ASX 200, New Zealand's Limited 50 FG and Sweden's OMX remain quite overextended.
I have been cautious in my stock market trading over the past weeks because many of the leading stock markets have remained overextended. But I have also been happy to give the benefit of the doubt to the upside because so most other markets have found support above their moving averages and succeeded in posting a succession of higher lows above those March 5th lows.
Today's downward dynamic on the Shanghai A-Shares is important because it warns us that this leading market which has been trading in rarefied territory has encountered some selling pressure. Investors are very aware of how China performs because of the effect which the downward dynamic on February 27th had on global stock markets. Many equity markets reacted to today's move, which was not as large, and we have probably entered at least a consolidation of recent gains for many of them.
Before we even start to talk about markets moving back towards their 200 day moving averages we need to look at how markets have performed since the February reaction. There are two basic short-term chart patterns in stock markets today: those which have made not surpassed the February high and those which have. Here are two examples:
Spain's IBEX had been a leader moving into the February reaction and has lagged since. It has been trading around 15,000 for the last two weeks and today fell from that level. If it holds above 14,500 then a break above 15,000 would be much more likely in the short to medium term.
Germany's DAX moved relentlessly through its February high and is again quite over extended relative to its moving average. The round 7000 level which marked the previous high may provide an area of support now, but it needs to hold above this level to maintain the bullish outlook.
Given the fact that the global interest rate situation is still in neutral to tightening mode, it would not be surprising for many markets to range rather than trend, giving time for the moving averages to catch up with them.