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Key Global Equity Index Back On The Precipice

Tyler Durden's picture




 

Via Dana Lyons' Tumblr,

An index that tracks the world’s largest stocks is testing its post-2009 uptrend…again.

The “markets move at random” crowd generally has a difficult time with our posts wherein we lay out price movement scenarios based upon charting analyses. Any reluctant concessions on their part typically center around the “self-fulfilling prophesy” notion. That is, technical analysis only works because so many market participants are watching the same chart levels that their effectiveness is “self-fulfilling”. We disagree. We don’t think it’s that easy. If everyone is watching the same levels, and they work, then everyone is winning. We all know that’s not a market reality.

In fact, we have found an inverse relationship between the popularity of a technical analysis tool, a chart level or even a security itself and the effectiveness in their exploitation. In our experience, obscure securities – or even price plots that nobody trades at all – are more conforming to technical tools. That idea really confounds the “random crowd”. As an example, we offer up the Global Dow Index.

As a refresher, the Global Dow is an unweighted average of 150 of the world’s largest companies. And although there is naturally a massive amount of money traded in its components, there is very little money directly tied to the index itself. So what possible reason would there be for the index to “respect” key technical levels on its chart? We have no idea – it just does. And while that reason may be wholly inadequate for the random crowd, it’s plenty satisfactory for us.

Whatever the reason, the Global Dow has conformed to technical chart levels very closely over the past 6 months. In fact, it has been very useful in helping us navigate the global equity landscape over that time. Consider its track record.

In mid-June, we noted that the Global Dow was testing the Up trendline on its chart that extended from the 2012 low. Why would an index that essentially nobody trades form a trendline stretching over a 3 year period with at least 5 separate precise touches? We aren’t sure, but it did. The index again bounced following the June post after another precise kiss of the trendline. Even more helpful was observing the break of the trendline 2 weeks later, setting the stage for global equity weakness later in the summer.

At the lows in late August/early September, the Global Dow found itself testing another Up trendline: the one extending from the 2009 low up through the 2012 low. Now, with nobody really trading the index, why would it respect this trendline either? We’ve no idea, but it did again. Furthermore, the following major confluence of Fibonacci Retracement levels lined up in the same vicinity as the trendline. If you want to call the index’s exact bounce off these levels a random occurrence, so be it. It was actually very instructive to us.

  • The 23.6% Fibonacci Retracement of the 2009-2014 Rally ~2291
  • The 38.2% Fibonacci Retracement of the 2011-2014 Rally ~2284
  • The 61.8% Fibonacci Retracement of the June 2013-2014 Rally ~2275

Well, the bounce lasted for about a month. During the re-test of the initial low, the Global Dow broke down below its post-2009 Up trendline, a development we noted with serious concern on September 29. Of course, that day turned out to be the low for the correction as the index, and stocks worldwide, turned around and rallied from that point. Despite the “false breakdown”, we don’t necessarily consider this a failure of the chart levels. False breakouts and breakdowns occur all the time. The ability of price to quickly recapture the trendline can be just as instructive as the breakdown. Indeed, we considered it a very positive sign in this case.

The most recent post on the technical travels of Global Dow perhaps did not contain quite as significant a level as the prior examples. Nevertheless, the behavior of the index did nothing to detract from its stellar run of adherence to key charting points. On November 5, we noted that, following over a month-long rally, the Global Dow was encountering resistance. Now, did we know the high for the post-September rally in the index would end up occurring on November 4? No, but the chart gave us some good hints in that regard – certainly much better than random.

Fast forwarding to the present, we see that the Global Dow is now back on its post-2009 Up trendline, not to mention the vicinity of the key Fibonacci cluster as well still. Here is the chart, also showing some of the key junctures mentioned above.

 

image

 

Here is a close-up look at the past 6 months.

image

 

What’s the point? From a philosophical standpoint, if you have never considered the possibility that price movements have very little to do with random occurrences based on fundamental data and a whole lot to do with supply and demand, investor psychology and technical price structure, we would urge you to re-consider. Even an index like the Global Dow, which has next to nothing in the way of money tied to its movement, has shown a strong tendency to adhere to key technical levels on its chart.

Importantly, from a technical standpoint, the Global Dow is presently sitting on top of its post-2009 Up trendline as well as a major cluster of Fibonacci Retracement levels. We’ve said that when we see an increase in the frequency of tests of a trendline or other key level, the likelihood of the level breaking increases. That is what we have been seeing recently. Therefore, while the trendline may be able to support another bounce (in conjunction with a year-end equity rally?), we see increasing risk that the trendline will break. If that occurs, the next significant support on the chart is over 10% below current prices.

Then again, if you think it’s all random, carry on.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

 

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Wed, 12/23/2015 - 09:26 | 6955928 Mark Mywords
Mark Mywords's picture

Blah blah blah. The children running around this dump disguised as adults want - no, DEMAND - a "Santa Claus" rally as a distraction from their other distractions that keep them distracted from the important things in the world.

Distractions distracting them from distractions. The proles described in one sentence.

Wed, 12/23/2015 - 09:29 | 6955934 Arnold
Arnold's picture

Is a prole like a schlong?

Wed, 12/23/2015 - 09:32 | 6955944 knukles
knukles's picture

Depends on how big it is.

Wed, 12/23/2015 - 09:40 | 6955962 Arnold
Arnold's picture

Considering the universal lack of spell check use, I had to consider being insulted by my Polish Heritage, Schlong size, or choice of career.

 

I chose none of the above.

Thank you all for Knowledge and entertainment through out the past year.

Continued Good Hunting in the next one.

Wed, 12/23/2015 - 09:41 | 6955973 VinceFostersGhost
VinceFostersGhost's picture

 

 

Depends on how big it is.

 

I stand in the presence of freakin genius.

Wed, 12/23/2015 - 09:47 | 6955983 The Pope
The Pope's picture

What do you make of this Jonny?

 

Jonny: "Oh I could make a brooch, or a hat, or a teradactyl"

Wed, 12/23/2015 - 11:31 | 6956276 Angel_Eyes
Angel_Eyes's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.wallstreet34.com

Wed, 12/23/2015 - 09:27 | 6955931 indygo55
indygo55's picture

Nothing in this world economy is random. Everything is rigged and the rigging is failing as more and more people wake up.

Wed, 12/23/2015 - 09:42 | 6955972 RockySpears
RockySpears's picture

Please tell me gold is not rigged, looking to take a serious plunge into PMs.

I am looking to put some really substantial cash into gold, but it seems illogical, the more I think about it (or the more I worry about wrong decisions).

Everyone hates the Petro-dollar and thinks it's doomed, but GOLD is denominated in $ too, so is it doomed too?

If I buy (in £ as I am UK based) gold and the dollar rises (as people here insist it must through returning bond/treasuries/cash or whatever) when no one needs it anymore, then the $ price of gold goes down, or up?  But the $/£ goes up, or down, for me so I do not benefit.

  If the $ crashes, then gold will be traded in what?  Still $s, just lots of them?  Now my gold buys zillions of dollars, but maybe no different £s.

It seems that exchange rates are more important than gold values.

Now I know I am being difficult here (but I also feel I SHOULD get gold) but is the gold holding ONLY for a SHTF scenario?

I have little debt, so inflation/deflation does me relatively no harm unless I hold cash (which is why the Gold).

Given that I will always be looking to convert the gold into a currency, what currency will that be and what will it trade against the £ at and will I be on the winning side of the whole thing anyway?

I have food and water enough, just really stuck on the "currency question".  (not much interest in crypto, you just make them on a PC, seems worse than printing)

Thanks,

 Rocky

Wed, 12/23/2015 - 14:03 | 6956941 RabbitOne
RabbitOne's picture

Rocky, PM’s are a hedge against government risk (not inflation). Currently government(s) is showing higher and higher risk in numerous area’s. PM’s keep you on the right side of that risk with government.

 A case can be easily be made that PM’s are manipulated. Just look at ZH’s long history of articles on price fluctuation and the huge positions being placed. And in the current market keeping PM’s low calms the crowds.

 I would not plunge into PM’s. I would make a plan to dollar(pound) cost average into PM’s over time. Don’t focus on the risk. Focus on the plan. If you miss the big crash well that is too bad. It is more important to keep the emotional side out of this. I have been building my PM stock up for years. I am probably in less in PM’s than I should be but I stick to the plan…  

Wed, 12/23/2015 - 14:22 | 6957036 RockySpears
RockySpears's picture

"a hedge against Government risk"?  Now you really have me.

What? In case they go bad?  Govs just keep doing things badly (sometime by not doing much at all).

I pretty much get politics (well, ours anyway)  but the Economics (if they can be called that) keep rolling on, seemingly forever.  There seems an ability to keep finding the next thing, and we live another 10 years.

When things go wrong, they do not go too badly.  The longer things just deteriorate, the worse a situation it seems we can live with.

Thanks for a new perspective to worry over, maybe I'll just add a couple of coins a month.

Cheers

Rocky

Wed, 12/23/2015 - 09:33 | 6955947 MFL8240
MFL8240's picture

Laughable!

Wed, 12/23/2015 - 09:34 | 6955950 ParkAveFlasher
ParkAveFlasher's picture

Stink.  Stank.  Stunk!

Wed, 12/23/2015 - 09:36 | 6955957 surf0766
surf0766's picture

Charts don't matter there is only print and propaganda

Wed, 12/23/2015 - 09:37 | 6955964 buzzsaw99
buzzsaw99's picture

heard it, read it, a hundred times before.

Wed, 12/23/2015 - 09:45 | 6955979 The Pope
The Pope's picture

So what if you're one of those cultures that reads from right to left?

Wed, 12/23/2015 - 09:55 | 6956002 yogibear
yogibear's picture

Year-end Wall Street bonuses are the most important! I want my toys!
Year-end Wall Street bonuses are the most important! I want my toys!
Year-end Wall Street bonuses are the most important! I want my toys!
Year-end Wall Street bonuses are the most important! I want my toys!

Wed, 12/23/2015 - 09:57 | 6956008 Oldwood
Oldwood's picture

the end is near, or nearer. My dad saw it coming and died before seeing it at 85. Maybe I will be so lucky.

Wed, 12/23/2015 - 10:05 | 6956033 Truth Eater
Truth Eater's picture

Trying to make sense of the manipulated markets is one silly thing to do.  Pretending you have a master plan charted to show the way is even sillier.  The bastards pulling the strings set up that system to take from anyone who puts their crystallized labor into the pot.  Just when you think you have a chance, they change the rules.... and its gone!

Wed, 12/23/2015 - 10:08 | 6956041 ghostzapper
ghostzapper's picture

Excellent article.  

Bring on the downvotes.

Wed, 12/23/2015 - 12:58 | 6956587 MrSteve
MrSteve's picture

I second your salute. Cynics need to explain why sweet corn kernels line up in orderly rows and honeycomb cells lie in hexagon grids while 6 billion humans and their actions do not align with Fib flow lines, etc, and why cycles "appear" in human history.

Wed, 12/23/2015 - 10:12 | 6956052 FreeNewEnergy
FreeNewEnergy's picture

Apparently, there isn't enough flouride in the water around here.

Drink deeply of the Kool-Aid.

Do NOT follow this link or you will be banned from the site!