Chart 1: Bearish divergence between the index and stock participation
Source: Short Side of Long
It is amazing what two negative days can create within the indicator space. Here is a quick update on the breadth. S&P 500 is only down 3% from its all time high and yet only 70% of its 500 components are trading above the 200 day moving average – the lowest number since late 2012. The bearish divergence between the rising index and the falling participation was not impacting stock prices for months, until now.
Furthermore, global indices around the world are declining even faster then the US equity market. Even though the MSCI World Equity Index is only a few percentage points away from its recent 52 week high, there are currently less than 40% of global indices trading above their respective 200 day moving averages. In other words, 60% of the indices globally are either in a bear market or a correction phase. Side Note: As of Friday, 0% of major GEM equity indices are now trading above their respective 200 day moving averages.
Chart 2: Participation of global equity indices is rapidly on the decline
Source: Short Side of Long
If we observe Chart 3 more closely, we can see that certain equity indices peaked in late parts of 2010 and into May 2011. These include Canada, Italy, China, Brazil, Russia, India, South Korea and so forth. More recently, leading into May 2013, yet more equity indices peaked out. These include Turkey, Thailand, Indonesia, Australia, Singapore, The Philippines and a few others. The current peak in January 2014 could signal few more equity indices peaking.
Chart 3: One by one, global equity indices are entering bear markets…
Source: Short Side of Long
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