• Daniel Lee

Technical Analysis: MSCI World Index and AC Asia Ex Jap

Last updated: [04/07/2021]


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In this article, I will be zooming into the technical analysis of the MSCI World Index and AC Asia Ex Jap, both of which serve as our benchmark for our investments. An Index ETF that tracks the underlying indexes will be used as a proxy for this exercise.


I'll primarily be examining the market using:


MSCI World Index (URTH)


Current Trend: Bullish Uptrend

For the month of June, the prices of global equity traded sideways and ended the month with a new high price level driven largely by the US equities.


While prices are still going strong, the momentum behind the share price movement continued to be on the decline. This does raise an eyebrow as it is a sign of a bearish divergence.


The Klingler oscillator had declined steadily over the past month and is currently still trading below zero line - which signals a bearish position.


On the other hand, the RSI experienced a "yo-yo" effect throughout the month and ended at a level where it previously was.


Moving forward, we can expect the share price movement to continue trading near the short-term trend channel's support given the current market sentiment.


However, should the momentum continue to be on a decline, there is a good to fair chance that prices may break down from the short-term trend channel and correct themselves back to the long-term trend channel resistance (highlighted in green).



MSCI AC Asia Ex Japan (AAXJ)


Current Trend: Sideways

For the month of June, prices for the Asia equities traded sideways whilst testing the short-term trend support line (highlighted in red)


Given the behaviour of the price actions, we can expect prices to continue to trade sideways between the resistance and support line (highlighted in white).


Should the prices break past the resistance line, there is a good to fair chance that the price actions will continue their bullish uptrend.


Should the price break past the support line, there is a good to fair chance that the trend may reverse and the price actions will move into a short-term bear market territory.


With regards to the momentum of Asian equity, it has declined steadily over the month of July.


For the large part of the month, the Klingler oscillator was declining and continued to trade within the bearish region - below the 0 lines.


The RSI displayed similar behaviour as the Klinger oscillator and is current treading towards around the neutral region whilst trending downwards.


The issue with Asia equities at the moment can be attributed to lacklustre investor sentiment towards the recent developments in the region itself.


For the bullish uptrend to continue, prices will need to break out of the next resistance line and the Klinger oscillator will need to trade consistently in the bullish region.


That said, prices can really go both directions at the moment as the pessimism towards the Asia region and the Asia market is quite high at the moment.


Unfortunately, there seem to be no tailwind events that may provide the market with the boost it needs to continue its previous uptrend.



Volatility Index (for S&P)


During the month of June, the ViX has been trading below the 20 range which is a good sign as it signals low volatility for the US market and hence the global equities market.



Overall comments

Looking at the current developments in the market as well as the euphoric attitude of market participants, there is a good to fair chance that we may see a positive year in 2021.


Furthermore given the amount of liquidity available in the market and the lack of alternatives for savers to earn a higher return, all the money is and will continue to flow into the capital markets, therefore pushing prices further up.


In my opinion, unless there is significant news or developments that could change the current market sentiment of investors, it is unlikely that the trend will be disrupted.


Though as I've been preaching since last year, whether or not the move is one that is sustainable fundamentally is another question that is to be answered.


That said, if we look across the charts for both URTH and AAXJ, you realize that that the current price levels are trading either outside or nearing the resistance line of the long-term trend channel (highlighted in green).


From a purely technical analysis perspective, it doesn't seem likely that such a short-term trend channel will be able to outlast and overwrite the long-term trend channel behaviour.


As such, the probability of prices coming down to trade within the long-term trend channels is higher than the probability of prices continuing within the short-term uptrend and trade towards the moon.


Base on technical analysis alone, lump-sum investments into either URTH or AAXJ at this given point in time may not be a wise thing to do as the odds are against your favour.


Read Also: 2020 Annual Review. 2021 Market Expectations

Read also: Anatomy of a financial crisis and what you need to know about it


While our focus remains unchanged in the long term - capturing Asia Region's growth in the next 10 to 20 years - It is also important to acknowledge that valuations matter and not get carried away by the plausible continuation of a bull market in the coming months.


Remember, prices go up like an escalator and come down like an elevator.


A 50% loss requires a 100% return to break even, while time in the market is important, sitting back and doing nothing despite signals of an overheated market instead of managing your portfolio's risk exposure is definitely not the right way to move forward.


Clearly, not making a profit beats incurring a loss. When in doubt, remember the first rule of investing: Never lose money.


For my clients, I'll keep yall updated as to how we should position ourselves both so as to capitalize on the short-term volatility while remaining focused on our long-term investment objective!


If you have any questions for me do drop me a text :)


For the rest of my readers, do consume the insights at your own risk and develop your own decision based on both fundamental and technical analysis rather than relying on single metrics for measurement.


Should you need any help or a second opinion on your financial and investment planning, you can get in touch with me and we’ll work something out do together:

You can also join my telegram channel to receive first-hand updates:

Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides:

Huge disclaimer:

The goal of understanding market timing is not to buy at the market bottom and sell at the market top but instead to identify major changes in a trend and differentiate them from day to day movements in the market.


With the ability to identify these key turning points, investors should be able to avoid a “roller-coaster to nowhere” of constantly riding the bull markets higher and bear markets lower, ending up with very little to show for the rider in terms of increasing portfolio value.


Disclaimer:

This article is meant to be the opinion of the author and is for information purposes only.

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore

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