World Markets Weekend Update: 5 Up, 3 Down

by: Doug Short

The past week was another mixed bag for my eight focus indexes but with a somewhat more positive skew compared to the week before. Five of the eight posted gains. The Hang Seng was the top performer with a 3.36% rally followed by France's CAC 40, up 1.16% and at its 2013 high. The Three losers dropped over one percent with the worst performance being the S&P 500's 2.10% selloff, its second consecutive weekly decline.

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 still down over 40% from its interim high of August 2009. At the other end, France's CAC 40 is down a mere 0.80% from an interim high following its 2009 global crisis trough.

Here is a closer look at the YTD performances, which continue to be dominated by the astonishing volatility of the Nikkei.

Consider this mind-boggling fact about the Nikkei in 2013: There have been 34 Friday closes so far this year. For 20 of those 33 closes, the Nikkei has been either the top performer (13 times) or the bottom performer (7 times). Nine of those weekly performances have been a gain (or loss) of over 4%. If we lower the threshold to +/-3%, the number rises to 13!

For the past several weeks I've included a snapshot of the Nikkei with its Fibonacci retracement highlighted. The behavior of the index against this metric remains fascinating. Below is an update through Friday, where we see the lower Fib at 38.2% as the approximate resistance of the latter part of the past week, not unlike the week before. Clearly this Fibonacci "jungle gym" continues to be a feature of the Abenomics playground.

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 and subsequent volatility, puts it solidly in the top spot with a 33.31% YTD gain but well off its 2013 peak gain of 50.33%. For the second consecutive week, the CAC 40 has the distinction of being the only index at its YTD high. The indexes in the red YTD are the same as last week.

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 consistency with the other indexes, which do not include dividends.