Technical Analysis: MSCI World Index and AC Asia Ex Jap
Updated: May 9
Last updated: [02/05/2021]
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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)
Comments & signals for MSCI World Index
Current Trend: Bullish Uptrend
For the month of april, the prices of global equity continued its movement along the short-term trend channel (highlighted in blue).
Bulk of the share price increase was due to the sharp incline from the US market where the S&P finally broke past the 4,000 resistance level and had since progressed till 4173.
While prices are still going strong, the momentum behind the share price movement continued to be on the decline.
The Klingler oscillator is current still trading above 0 - which signals a bull market - but the movement of the indicator is trending downwards since the mid of march, signaling a decrease in momentum.
With regards to the RSI, it has since came off the overbought region and is inching towards the neutral region.
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 as well as the optimism surrounding the current earning reports.
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 itself back to the the long-term trend channel resistance (highlighted in green).
MSCI AC Asia Ex Japan (AAXJ)
Current Trend: Bullish Uptrend?
For the month of April, prices for the Asia equities has been trading side way forming an ascending triangle pattern (Highlighted in purple).
Given the behavior of the price actions, we can expect the current trend to continue once prices breakout of the triangle which should happen by the third week of may.
Despite the lack luster performance in price actions, the momentum of Asia equities has been picking up since the mid of march.
The Klingler oscillator has shifted from the bearish region to the bullish region during the mid of April and the indicator itself exhibits an uptrend signal.
The RSI on the other hand is still currently trading around the neutral region after recovering from a near oversold region since the mid of march.
The issue with Asia equities at the moment can be attributed to a lackluster investor sentiment towards the recent developments in the region itself.
There may be a good to fair chance that instead of a continuation of the upward trend, we may witness a correction given the current pessimism revolving around Asia (especially India) at the moment coupled with a potential fund outflow from Asia to the US given its recent developments.
Volatility Index (for S&P)
Since the star of Apbril, the Volatility index has been trading below the 20 region which is a good sign as figures below 20 signify a low volatility environment while figures above 20 signify a highly volatile market.
Last month, I mentioned that march is a month of consolidation and that the market is taking a breather before making the next move.
Indeed, in April, we saw that the global equities had made its next move and scaled higher, returning an additional of 5.7% return in one month. (wtf)
Asia on the other hand is still currently still consolidating, Looking at how things are developing, we may expect the next move to occur soon.
Overall, my views remain unchanged.. which is:
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 behavior.
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 favor.
Read Also: 2020 Annual Review. 2021 Market Expectations
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.
As the saying goes: "the market can stay irrational longer than you can stay solvent", 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, 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 question 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:
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Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides:
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.
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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