World Markets Weekend Update: The September Bounce Continues

by: Doug Short

All seven of the eight indexes on my world watch list posted strong advances for the week. The exception was China's Shanghai Composite, where the stock exchange was closed Thursday and Friday for Mid-Autumn Festival, and thus missed the "No-Fed-Taper Festival" celebrated by the other seven indexes.

Interestingly, the index most closely associated with Fed policy, the S&P 500, finished the week in sixth place with its 1.30% gain. Of the seven indexes open all week, only the UK's FTSE fared worse with its fractional 0.19% advance. The big weekly winners were the three Asia-Pacific indexes (ex-Shanghai), with the 2.69% gain for India's SENSEX besting Hong Kong's Hang Seng by 0.13% and Japan's Nikkei by 0.35%.

Had the Shanghai Stock Exchange participated in the "No Taper" rally, we might have had a third consecutive week when all eight indexes posted gains -- something that hasn't happened in 2013.

The Shanghai Composite 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 36.86% from its interim high of August 2009. At the other end, the CAC 40 nudged out the DAKX for smallest percent off high, dropping the French index to second, with the S&P 500 close behind.

Here is snapshot of the YTD performances, with the volatile Nikkei as the ongoing attention-grabber.

For the past several weeks I've included a daily chart of the Nikkei with its Fibonacci retracement highlighted. The behavior of the index against this metric remains fascinating. At the close preceding the "No-Taper" announcement, the Nikkei had bumped into the 61.8% retracement, but it closed above that level on the following day. 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, despite its big correction and subsequent volatility, puts it solidly in the top spot with a 41.82% YTD gain and closing in on its 2013 peak gain of 50.33%. That's over double the YTD gain of the runner-up S&P 500. Only the Shanghai Composite remains in the red YTD.

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 and 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.

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.

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