Moving Averages Flirting With Key Levels
I yesterday summarized my market view in a post entitled "Commodity prices - on a knife's edge". For some additional perspective, I consider the key moving averages of the principal asset classes in the following paragraphs:
The major moving-average levels for the benchmark U.S. stock market indices, the BRIC countries and South Africa (where I am based in Cape Town when not traveling), are given in the table below. The key observation is that after the nascent correction, most major indices are within striking distance of their 50-day moving averages. As a matter of fact, emerging-market indices such as the Shanghai Composite Index, the Bombay Sensex Index and the Brazilian Bovespa Index have already breached the 50-day lines. However, all the indices in the table are still trading above their key 200-day moving averages - often used as an indicator of the primary trend.
From across the pond, David Fuller (Fullermoney) provides the following perspective: "Technical evidence of this corrective phase can now be seen in the combinations of recently failed upside breaks, downward dynamics, breaks of rising lows within the prior short-term uptrends, and the ranging loss of upside momentum. It would be prudent to expect this process to continue for a while longer in what is at least a partial mean reversion towards the rising 200-day moving averages."
The table below shows moving averages for the other major asset classes - commodities, gold, currencies and government bonds. Interestingly, the Reuters/Jeffries CRB Index (commodities) is still marginally above its 50 DMA, whereas West Texas Intermediate Crude has just breached the 50-day line. The U.S. Dollar Index's recent strength pushed the greenback above its 50 DMA (but still below the key 200 DMA), whereas the U.S. dollar/euro exchange rate has fallen below its 50 DMA (but is still above the 200 DMA). The other noteworthy readings are that gold bullion remains comfortably above all the key moving averages, while the 10-year Treasury Note yield has breached the 50DMA but still has some way to go to give a primary sell signal, and the commencement of a secular bear market, by crossing the 200 DMA.
I have been warning for some time that "risk off" could be the order of the day for a while, and remain cautious regarding risky assets.
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Author: Prieur du Plessis
Dr Prieur du Plessis
investmentpostcards.com
With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.
Copyright © 2008-2012 Dr Prieur du Plessis
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