Technical Analysis: MSCI World Index and AC Asia Ex Jap
Last updated: [02/11/2020]
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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
Comments & signals for MSCI World Index
Price Actions: In the month of October, prices have formed a second top and ended up lower than the second support level. From a technical perspective, should the price level continue to decline a breach of the blue support line followed by the white support line, we may experience a double-dip in an attempt to test march price levels.
Klinger Oscillator: Based on the indicator behavior and its current level, two conclusions can be drawn. The first is that price actions since 29 April is inconsistent with the behavior of the indicator itself. The second is that the prices have just crossed the bearish region. Long story short, by observing the indicator one should be cautious with the current price movements.
Relative Strength Index: Thanks to the correction, the RSI has corrected itself from an overbought region nearing to an oversold region and has been trading around the 30s for the last week of October.
MSCI AC Asia Ex Jap
Price Actions: Unlike global equities, Asia equities exhibited more side-way behavior since August with prices trading around the resistance line. Though not as obvious as the global equities, one may argue that price levels of Asia equities are exhibiting a double top pattern as well.
However, from a technical perspective, the probability of experiencing a double-dip in the Asia equities market is lower as compared to the probability of experiencing a double-dip in the global equities market.
Klinger Oscillator: Based on the indicator behavior and its current level, two conclusions can be drawn. The first is that price actions since 12 May is inconsistent with the behavior of the indicator itself. The second is that the prices had recovered back to the bullish territory in the month of October and it seems to be trending towards the bearish territory again at the end of the month. Long story short, by observing the indicator one should be cautious with the current price movements.
Relative Strength Index: Similarly to the global equities, the RSI had since come down from a near overbought region to a neutral region.
Volatility Index (for S&P)
The VIX indicator breached the 30 levels in the last week of October, signifying a higher than usual level of volatility in the markets (neutral zone: less than 20). This can be directly attributed to the higher levels of uncertainties revolving around both the U.S. election and the second wave of COVID in Europe.
October turned out to be a month of volatility as per what we thought it would be.
With the upcoming U.S. election, we see that the market is getting more and more skittish about the uncertainties revolving around the elections, 2nd wave of COVID, deteriorating regional trading relationship, etc.
Interestingly, the behavior of Asia equities is starting to deviate from the behavior of the global equities - mainly due to the fact that the Asia region is in a better position than the western counterpart in the war against COVID.
Depending on how the U.S. election will turn up and how the second wave of COVID develops, we can expect to see higher levels of volatility in the global equities as well as a greater deviation between the behavior of Asia equities and Global equities.
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 the weakness in the current short term trend, the inconsistencies that we've been experiencing between the price actions and the indicators, the high valuations, and potential future developments that may correct or worsen the gap between valuations and price levels.
Moving forward, the key is to have a better understanding of the sustainability of price actions and adopt proper risk management. Depending on your view of the market, you may want to consider cutting back on your exposure to certain markets and re-enter upon clearer signals of a SUSTAINABLE economic and market recovery.
Remember, a 50% loss requires a 100% return to break even, while time in the market is important, sitting back and doing nothing despite clear signals of an overheated market instead of managing your portfolio to reflect a more appropriate risk exposure for your own financial situation is not the right way moving 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! Keep a lookout for my private messages as we move into the month of November!
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 second opinion on your financial and investment planning, you can get in touch with me and we’ll work something out do together:
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Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides advice in the following areas:
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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 coster 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.
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
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