A key global equity index is testing potentially major resistance.
Unlike in recent years when the U.S. market dominated, stocks around the globe have been on fire this year. Just yesterday, we mentioned the latest great looking breakout underway in the South African stock market. Of course, with all of these individual countries exhibiting strength this year, it stands to reason that the broader indices would also be performing well. One such index is The Global Dow Index (GDOW).
The Global Dow is an equally-weighted index of 150 of the largest stocks in the world and it is one of our favorite barometers of the state of the worldwide equity market. Coming into 2017, we mentioned that the GDOW was facing significant resistance in the form of a 10-year Down trendline stemming from its 2007 all-time high of 2878.
After holding for about a month, the GDOW was able to surmount the trendline (near the 2590 level at the time) by late January. That opened the upside in the GDOW to that 2007 all-time high of 2878. Of course, that meant a further 11% rally in the index to get there. Well, roughly 7 months later, the GDOW has arrived.
The red hot index closed on Monday at the 2879 level, equaling its 2007 all-time high.
So, does this mean the global equity rally is doomed? Not necessarily. However, one reason why we like using the Global Dow as a barometer of the global equity market is because it conforms well to technical charting analysis. And certainly classical charting analysis would suggest that 10-year old all-time highs should at least pose as temporary resistance following a decade-long round trip. But how temporary, and how much downside risk may there be prior to another potential breakout?