Technical Signs of a Recovery?

01/12/2009 12:01 am EST

Focus: GLOBAL

David Fuller

Global Strategist and Producer, Fullermoney

David Fuller, global strategist and writer for Fullermoney, offers a technical review of major global markets.

2008 was a year that most investors are relieved to leave behind, but looking ahead we can take some comfort from two historical facts:

1. Bear markets do not last forever.
2. The biggest bear markets are followed by the best recoveries.

The long-term foundation for the next recovery will be laid down by fundamental economic factors. However, since sentiment is such a crucial influence on markets, the evidence of recovery will not appear first in fundamental data, which is reported some months after the event. Evidence of significant recovery potential will appear on the price charts before anywhere else.

Here are some observations on specific markets:

  • Singapore is one of the most stable economies and best value markets. Its May-October slide appeared climactic, and commencing with the low on October 28th, the big days (dynamics) have been on the up side. A move beneath the early-December low would suggest at least a retest of the lows. 
  • China is drifting beneath its early-December low, and is questioning [its] role as a possible leader of an eventual recovery; it needs to push back above 2000 [on the Shanghai Composite index] and a higher high on the [point & figure price charts] to remain consistent with base formation development.

  • Australia had lagged until recently, but would show further evidence of base development on a sustained break of the [All Ordinaries] above 3750. Conversely, a close beneath 3500 for more than a day or two would be a concern. Australia’s stock market could improve quickly given a stronger performance by oversold industrial commodities, notably base metals.  
  • Interestingly, the UK point & figure chart shows both a higher high and a higher low (previously it showed only one or the other, but not both) for the first time since the bear market commenced. Upward dynamics within the current range are encouraging but a close for the FTSE 100 beneath 4200 would provide the first evidence of a lower phase of base development.

  • Germany’s point & figure also shows a higher high and higher low for the first time since the top was completed. Upward dynamics are encouraging; a close beneath 4500 is required to indicate a lower phase of base extension, and below 4300 to question the base-building hypothesis.  
  • The USA’s upward dynamics offer some hope that the current range is a base formation but it is important that the early-December lows hold. Meanwhile, a retest of 1000 [in the Standard & Poor’s 500 would be an extremely positive development.

  • Canada’s point & figure chart shows a higher high and higher low for the first time since the last bull market’s peak. An extension in the sequence of rising lows evident on the daily and weekly charts would be extremely positive.

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