Coronavirus blog by Geert Van Herck:
Is the trend going upwards?
A new week, a new update. In this week's article, we will discuss a few charts. By taking a very close look at them, we will be able to draw a few conclusions about which direction the stock exchanges are heading in. They appear to be going up, but some caution is needed in this interpretation.
First up for our analysis is the daily chart for the ETF of the MSCI All Countries World Index (MSCI ACWI).
Why are we using an ETF for this analysis? All a tracker like this does is follow or shadow its underlying index. In other words, if we are looking at the ACWI ETF, then we are seeing exactly the same thing as if we were looking at a chart of the underlying MSCI ACWI index itself.
What can we tell from this?
Initially, it looks as though we have been seeing an upward trend since mid-March. This kind of trend typically has higher troughs. Once you realise the last important short-term trough was USD 65, then the upward trend is not at risk so long as the ETF remains above USD 64.
Our second conclusion is a little less positive. The 50-day moving average is still below the 100-day average. For many trend watchers, that configuration points to a downward trend, especially when both the 50-day and the 100-day moving averages are heading downwards.
'Stay alert' is the best advice here. No-one can argue that we do not need to keep a very close eye on the USD 64 support level over the coming weeks.
Graph 1 : MSCI All Countries World Index (daily chart, USD)
With the analysis of the Euro Stoxx 50 we turn our attention to our European domestic market. We have already said many times in the past that you can treat this index as a barometer, given that it includes the 50 most important stocks in the eurozone.
If we do the same thing as we did with the MSCI ACWI, then we can see:
- - that the Euro Stoxx 50 is also in an upward trend at present. In its most recent and most important trough, the index fell to 2800. So long as this floor is not breached, the rising trend for this index (and by extension for the European exchanges) will not be at risk.
- that here, too, the 50-day and 100-day moving averages are showing more of a downward trend, so they do not confirm the rising trend.
Once again, we need to stay alert. For as long as the index stays above 2800, we do not need to move towards being too defensive.
Graph 2 : Euro Stoxx 50 (daily chart)
What can we conclude?
The stock exchanges have recovered a little since mid-March. We cannot possibly make any predictions. That is usually a futile task in any case. We would be bold enough to suggest that we do not need to fear another imminent disaster scenario, so long as the above support levels are not breached.
Geert Van Herck
Chief Strategist KEYPRIVATE
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