Stock markets are losing momentum

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I was involved in a spectacular World Cup Final Draw in Cape Town last week, an event that said to the world that South Africa was ready to host one of the greatest World Cup events ever. As I have waved my foreign guests goodbye, it is back to blogging and I thought I would share with you the paragraphs below from London-based David Fuller, co-author of the daily Fullermoney commentary. (Please note that a number of interesting charts from the vast Fullermoney library have been included by means of hyperlinks.)

“We believe global stock markets are currently in an overall corrective phase, mainly in response to the strength of earlier gains. While the majority of share indices remain steady during this process, including on Wall Street, a loss of upside momentum is clearly evident on most daily and weekly charts for stock market indices.

“We think this corrective phase represents a somewhat more lengthy consolidation and reversion towards the trend mean, represented by rising 200-day moving averages, best seen on weekly charts. This consolidation can occur in primarily ranging patterns, as we have seen with many indices to date, or with somewhat deeper corrections where the sequence of higher reaction lows is broken for more than a day or two.

“We maintain this process is occurring within cyclical bull markets for equities, fuelled mainly by monetary policies that remain very accommodative. However, markets have reached a point where a rising tide of liquidity no longer lifts all boats. In the global beauty contest, investors are shunning, at least temporarily, markets with local or regional problems in addition to the earlier slowdown in global GDP.

“For instance, Dubai has been a source of concern within the Middle East, which continues to underperform generally. Political concerns have weighed on Nigeria and some other African stock markets. Slovenia reflects the particularly sharp recessions experienced by some of the smaller Eastern European economies. These are minor markets, which may stage a late run in the latter stages of the global bull trend.

“Interestingly, among major stock markets only Japan has been a clear underperformer in recent months. However, this week’s upward dynamic has reaffirmed support within the lower recesses of the Topix Index’s still developing base formation. Potentially, this is a more important signal than the downside weekly key reversal that capped the earlier recovery just below 1,000 in early September. It is no coincidence that this rally has coincided with the yen’s recent reversal of strength (shown inversely against the US dollar), a development we have maintained was essential for Japan’s economy and stock market.

“Returning to the upside leaders, there is still a possibility that having lost momentum, breaks in the progression of higher reaction lows could lead to a correction towards the 200-day moving averages before the upward trends are extended. Meanwhile, the key stock markets, in terms of influence, remain the USA and China. We also think Fullermoney themes, led by Asian emerging markets and South American resources markets, will enable the Emerging Markets Index to lead the next advance as well.”

Source: Fullermoney, December 4, 2009.

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