In yesterday’s Chart of the Day, we highlighted the Dow Jones Industrial Average ($DJI) trying to resolve above its key resistance level around 27,000. In the post, Patrick explains this level represents a logical area of interest among buyers and sellers as it coincides with the 261.8% Fibonacci extension measured from the Great Financial Crisis drawdown. Sellers have defended this level a handful of times since January of 2018, but tests have become more frequent recently. It looks as though buyers may have finally absorbed all the overhead supply as prices are sitting right at this key area of resistance and look poised to resolve higher. CMT, J.C. Parets shared the chart on Twitter and commented, “I think it’s irresponsible not to be aggressively long” if prices are above 27,000. Here is a look at his chart.
The main takeaway here is that after almost two years of consolidation at a logical resistance zone, major US Equity Indexes are back near all-time highs and appear ready to breakout and begin another cyclical bull run.
Thats great news for US Equity investors, but what about the rest of the world? Let’s take a look at some diversified International Equity Indexes and see if Global Equities are ready to breakout as well.
Here is a weekly chart of the MSCI All-Country World Index ($ACWI) from inception.
Similar to the Dow, ACWI is also working through major resistance at a key Fibonacci extension where prices failed several times since 2018. Rallies have halted and reversed at this critical 75 level at least five times in the last two years as sellers have overwhelmed buyers. To be clear, these Fibonacci extensions are not hard and fast rules for where prices must react, but instead a framework for anticipating natural levels of interest among buyers and sellers. If prices can finally resolve above this level and sustain new highs, it will be a very positive development for Global Equities. And as the US makes up roughly 60% of this diversified International Developed Equity Index, this would likely be occurring in an environment where the Dow and other major US Indexes are also breaking to new record highs.
Let’s look at one more International Index, the S&P Global 100 ($IOO) which looks very similar to ACWI and the Dow. The differences between ACWI and IOO are minimal, but because IOO holds an additional weighting towards US Equities as well as a larger concentration in its top holdings and Technology stocks, it has performed slightly better than ACWI in recent years. Here is a closer look at the consolidation that has taken place beneath key prior highs ~49.50 – 50 during the past two years.
As you can see, prices are currently sitting just above this former resistance turned support. Just like J.C. said about Dow 27,000, I believe it’s irresponsible not to err on the long side for International Equities as a whole if IOO is above 50. Can prices fail here and roll over as they have so many times in the past two years? Sure. But that is not the higher probability outcome as the more times a level is tested, the more likely it is to break. Tests of resistance have also become more frequent, indicating increasing aggresiveness among buyers. This is the kind of behavior that we expect to see during bull markets, not bears. And with prices at or near new highs for so many major Equity Indexes, the weight of the evidence is once again pointing to higher stock prices around the world.
Hope you enjoyed this post! As always, reach out to me at Strazza@thechartreport.com with any questions or comments.