Global Markets Roll Over At 200-Day Moving Average

November 10, 2015

The 200-day moving average is the most widely used technical indicator to indicate the basic ongoing trend in the price of a stock or other asset: If the price is above its 200-day moving average, it is in an uptrend; if the price is below its 200-day moving average, it is in a downtrend. It is a reliable maxim of many traders, both bullish and bearish: "Don't fight the trend" and "The trend is your friend."

By this standard, global markets reached a critical moment last week. Basically all markets had been in a long uptrend from 2012 until the August 2015 downturn, with a brief indecisive period from Oct-2014 to Jan-2015. This August of course markets plunged far below their 200-day trend line by 10% or more. Then the October rally took markets back very close to the trend line again.

So the next move carries a great deal of weight, because it will say a lot about whether we are resuming the long uptrend of 2012-2015, or whether the August market drop was the beginning of a new longer-term downtrend.

So far, global market action last week and this week is telling us we are staying in a new post-August downtrend, because markets around the world have been consistently rolling over and moving back downward as soon as they have approached the 200-day trend line.

This trend has been partially obscured in the United States because the benchmark S&P 500 index rose as high as 2.25% above its trend line at its peak last week, and it has spent more than two weeks above its 200-day line. But it's no secret that the US market has been the global leader in recent years, so it's not a surprise that the US would outperform other global markets in the recent rally as well. However, the big picture is that the US market has been moving together with global markets since the October rally, and simply peaked slightly higher -- the US has not been moving independently or in a different direction from other markets.

Let's look at the biggest overall picture of global market performance: VT, the Vanguard Total World Stock ETF. 

We see in the chart that the entire world stock market exactly touched its 200-day trend line at its intraday peak last Tuesday, November 3, and promptly rolled over and began moving downward again. This behavior is precisely what we would expect from a market in a new ongoing downtrend, periodically approaching its trend line but staying below it.

When we look at a variety of specific markets around the world, we find they all acted in rather similar fashion. Of course some peaked slightly below their trend line, just as the S&P 500 peaked above its trend line, but the overall pattern is quite similar for all of the world's major markets.

The German DAX index has stalled out right at its 200-day trend line:

The FTSE EuroTop 100 Index fell a bit short of its trend line and rolled over:

The picture in Asia is mixed, with Japan's market slightly above its trend line and other markets below their trend lines, but the Vanguard FTSE Developed Asia Pacific Index ETF gives us a composite view of the overall trend:

Finally, the Vanguard Total Stock Market ETF (VTI) gives us a composite view of all US stocks:

Of course, it remains possible that US stocks and the S&P 500 will hold the line above their 200-day moving average. But I don't expect it, because it would go against the overall trend we are seeing all around the world, and US stocks have been moving quite in line with global markets for the past year.

It is also interesting to note that the price of WTI oil and of gold both touched their 200-day moving averages earlier in October and then rolled over, well in advance of the end of the October stock rally:

Oil, gold, and stocks all in downtrends: This is a clear indication of a global deflationary trend, as indeed the broad commodity price crash has indicated since last year.