• Daniel Lee

Technical Analysis: MSCI World Index and AC Asia Ex Jap [28/06/2020]

Last updated: [28/06/2020]


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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 proxy for this exercise.


MSCI World Index


Comments & signals for MSCI World Index

Price Actions: For the first half of June, market has been moving steadily upwards and on 10 June, market experienced a sharp decline and has been trading sideways since. Prices have broke out of the trend channel and are currently testing the short-term resistance line (highlighted in blue). This signifies the potential end of the recovery momentum or at the very least the slowing down of the future bull movements.


Volume: Since the start of the rally, 23rd march 2020, the volume has been steadily declining as prices continue its upwards course of recovery. Such an inconsistent behavior between the volume and price action is certainly something to look out for as it signifies weakness in the current trend as evidenced from a weakening momentum.


Advance Decline Ratio/Line: Nearing the end of June, the AD ratio has been showing values lower than 1. This provides investor with a hint that the potential selling pressure currently outweighs the buying power, which is yet another indicator which contradicts an uptrend market.


Personal thoughts: The combination of high valuations, inconsistencies between price and volume movements and the increasing risk of a second COVID outbreak has made me come to a conclusion that the market has more downside potential than there is for upside.


Taking into account the med-term support trend line (highlighted in green) and the insane amount of liquidity flooding into the markets, I suspect prices will trade along the short-term resistance trend line and the med-term trend line. Worst case scenario, the market will witness a consolidation pattern until June 2020 where both trend line converges.


MSCI AC Asia Ex Jap

Price Actions: price are currently still trading within the trend channel (highlighted inblue), signifying that the recovery within the Asia market is current still alive. However, with the global market developments, there is a good to fair chance that the price movements in Asia market will follow suit and eventually lead to a break down from the trend channel support. This is further supported by the fact that prices are currently testing the near term resistance trend line (highlighted in red).


Volume: Similar to the World Index, volume has been displaying inconsistencies with the recovery since the begging of the trend back in march, signifying potential weakness and a loss in the recovery momentum as time passes.


Advance Decline Ratio/Line: Nearing the end of June, the AD ratio has been showing values lower than 1. This provides investor with a hint that the potential selling pressure currently outweighs the buying power, which is yet another indicator which contradicts an uptrend market.


Personal thoughts: Similar to the world index, I believe that the Asia market have more downside potential than there is for upside.


Moving forward, I suspect that prices will trade sideways between the range of the near term resistance trend line and the support trend line (highlighted in blue). In the worst case scenario, prices may break down of the support trend line and continue to test the med-term support trend line (highlighted in green).


Overall comments

The key moving forward is 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 clearly 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.


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, feel free to contact me directly at 9234 7537 or drop me an inquiry here.


You can also join my telegram channel to receive first hand updates: https://t.me/joinchat/AAAAAFVEzUiPA4IgQEm4vA


Daniel is a Licensed Financial Consultant with MAS, who specializes in retirement and investments planning. Find out more here.

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, investor 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.


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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