World Markets Weekend Update: The Rally Continues (Except For Shanghai)

Includes: SPY
by: Doug Short

The global rally for my featured group of eight indexes has entered its fourth consecutive week, with seven of the eight posting gains. France's CAC 40 took the top spot with a 1.82% advance. Of the 29 weekly closes in 2013, this is the first time the CAC 40 has finished first. Europe also took the next two spots, with Germany's DAXK up 1.45% and the UK's FTSE 100 close behind at 1.31%. China's Shanghai Composite was the sole finisher in the red, with a slide for the week of 2.30%. That's the eighth time this year that the Shanghai has been the worst weekly performer.

While we're on this bit of 2013 market trivia, Japan's Nikkei 225 has the best record as the top weekly performer with 11 wins, but it's also tied with India's SENSEX for the most last-place finishes at five each.

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 gut-wrenching 42.60% from its interim high of August 2009. The S&P 500, in contrast, set another all-time high on Friday.

Here is a closer look at the YTD performance, which continues to illustrate 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 selloff. A strong recovery since its June 13th closing low has brought the index within 10% of the May interim high.

Last week I included a snapshot of the Nikkei with its Fibonacci retracement highlighted. The result was pretty amazing. The update below shows that, despite its weekly gain, Friday's 1.48% selloff puts the Nikkei at a potential Fibonacci support level. What will next week bring? Prime Minister Shinzo Abe's ruling coalition is expected to win Sunday's upper house elections. That would probably reinforce the technical support.

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 40.35% YTD gain, but off its 2013 peak gain of 50.33%. Unchanged from last week, there are two indexes in the red YTD (the two from China).

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.

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.

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.

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.