World Markets Weekend Update: A Rally On Steroids

Includes: SPY
by: Doug Short

The global rally for my featured group of eight indexes has entered its third consecutive week, and all eight posted gains, something that had happened only twice previously in 2013. Germany's DAXK was by far the top performer with a 5.21% gain. In distant second, the S&P 500 rose 2.96%. At two decimal places France's CAC 40 nosed out the U.K.'s FTSE 100 for third: 2.70% versus 2.66%. After three weeks as the top performer, Japan's Nikkei came in last but with a respectable 1.37% gain. In fact, year-to-date, the weekly average of the eight indexes at 2.61% is second only to the 2.75% weekly average on the first Friday of 2013 (which carries the asterisk of having begun on the last day of 2012).

The Shanghai remains the only index on the watch list in bear territory -- the traditional designation for a 20% decline from an interim high. See the table inset (lower right) in the chart below. The index is down a depressing 41.25% from its interim high of August 2009. The S&P 500, on contrast set another all-time high on Friday. The surge in the DAXK moved it from fifth to second place in this comparison.

Here is a closer look at the YTD performance, which, more than anything, illustrates the power of Abenomics to levitate the Land of the Rising Sun to its interim high on May 22, followed by a sudden and dramatic sell-off and a Fibonacci-like recovery with dizzying volatility.

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I'm not a market technician, but after looking at the chart above, I took a moment to annotate a log-scale Nikkei daily with Stockchart's nifty Fibonacci retracement tool. The result was pretty amazing. It will be interesting to see if Friday's high continues to be a level of resistance.

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Here is a table highlighting the 2013 year-to-date gains, sorted in that order, along with the 2013 interim highs for the eight indexes. The strong performance of the Japan's Nikkei over the past few months, despite its big correction, puts it solidly in the top spot with a 39.55% YTD gain, but well off its 2013 peak gain of 50.33%. There are two indexes in the red YTD (the two from China) down from three last week, with the DAXK's strong week lifting it back into the green.

A Closer Look at the Last Four Weeks

The tables below provide a concise overview of performance comparisons over the past four weeks for these eight major indexes. I've also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.

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The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500, CAC 40 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October 27, 2008. However, by aligning on the same day and measuring the percent change, we get a better sense of the relative performance than if we align the lows.

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A Longer Look Back

Here is the same chart starting from the turn of 21st century. The relative over-performance of the emerging markets (Shanghai, Mumbai SENSEX, Hang Seng) up to their 2007 peaks is evident, and the SENSEX remains by far the top performer. The Shanghai, in contrast, formed a perfect Eiffel Tower from late 2006 to late 2009.

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Check back next week for a new update.

Note from dshort: I track Germany's DAXK a price-only index, instead of the more familiar DAX index (which includes dividends), for constency with the other indexes, which do not include dividends.