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How Are Global Stock Indices Faring?


This month we identify potential turning points in some global stock indices, starting with the GDOW.

In previous stories, we've noted that the major United States stock indices variously show signs of topping and exhaustion. Are there regional stock markets outside the US that are likely to hold up better? This month, we present a series of articles examining some of the most-watched equity indices globally, and we apply the combination of Elliott Wave and other technical analysis methods that readers here are familiar with. As context for the later parts of the series, we begin by focusing on the Global Dow Index (INDEXDJX:GDOW).

The GDOW consists of 150 blue-chip stocks that are selected by the Wall Street Journal and Dow Jones Newswires editors as representative of corporations throughout the world that are themselves large or that have dominant roles in industries that are believed to have large growth potential. The Global Dow includes all 30 of the US stocks that comprise the Dow Jones Industrial Average (INDEXDJX:.DJI), but it is calculated differently from the better-known index in that all its component stocks are weighted equally. The high shown on the chart for 2011 is the highest price in the GDOW's history, which also makes it different from several other major stock indices in the United States, Europe, and Australia.

The first thing to note about structure in the GDOW is that the large down-move that occurred in 2011 does not look like a completed correction. It might be viewed either as a five-wave impulse or perhaps as a more complicated '[a]' wave, but in either case it should be followed at some point by another down-move of approximately equal magnitude. That has not happened, and thus according to Elliott Wave conventions it is still on the schedule for future months.

The progressive recovery of the GDOW since the 2011 low appears to be complete, or nearly so, as an interim correction. A significant target on the weekly timeframe was reached at 2142, where wave 'c' equals wave 'a'. Nearly simultaneously with reaching the target, price tested the upper boundary of the Schiff channel shown on the chart. Another sign of growing weakness can be seen with the commodity channel index at the bottom of the chart, which shows a negative divergence with price.

Within the United States and abroad, blue-chip stocks have advanced for more than a year in the face of mediocre and bad economic news. Someday, this might be seen in retrospect as an example of how the stock market is not entirely reflective of the economy. In any case, the GDOW appears to be saying the same thing that major US indices are saying -- that the party is about to end. The next chapter in the GDOW should include a visit to areas below the 2011 low.

This article originally appeared on Trading on the Mark.
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