The picture on the front of this weeks Report shows the arena where all the bulls and runners end up at the end of the Pamplona bull run in Spain. There is a parallel between this picture and global markets at the moment. Investors and traders in various global markets find themselves at the end of a recent bull run and now they are standing around, scratching their heads and wondering if that really was the end of the race and if not, they are looking around to see when and where the bulls will run next.
In recent issues of this report we discussed the failure of the DAX, the CAC40 and the FTSE. They were leading global markets lower. The Shanghai index (SSEC) is trending down even though recently it showed a two day rally and finally, the we are seeing the first signs of weakness in the trend of Dow Jones index, but as the GMMA chart will show, the broad based upward trend may well still be in place and this pull back could be temporary.
So is the Dow Jones going to follow its European cousins? There is as clear up trend in the DOW and a clear break below the trend line. Technically, this is an automatic exit signal. But the signals are not quite so clear cut when you incorporate the Guppy Multiple Moving Average (GMMA) into the picture.
The GMMA shows that while the short term investors and traders (the red band) have sold off the DOW, the longer term investors and institutional holders and buyers of stock (the black band), are soaking up the selling.
It becomes more of a concern when the red band breaks through the bottom of the black band and the black band tightens up and begins to chase the red band lower.
At the moment however, we are seeing the trend in place according to the GMMA even though the trend line in the top chart has clearly been breached to the downside and signaled weakness in the market.
Perhaps the short term traders have got it right and are moving out of the market in advance of an expected decline. Perhaps the long term investors have got it right and are continuing to soak up the selling at a time when the market is on the verge of rising higher. It is a battle of hearts and minds at the moment and we continue to watch with great interest because the DOW influences our market and often provides a daily lead which we cannot ignore.
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The top three European indices broke their up trends and commenced developing rounding tops at the end of March and are signaling a lead that the Dow Jones might follow.
