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Progressing Economies Have:
Superior economic governance
Relatively strong GDP growth
Current account surpluses
Low levels of government debt
High personal savings rates
Sound banking sectors
Young, motivated & educated workers

Regressing Economies Have:
Poor economic governance
Relatively weak GDP growth
Current account deficits
Increasing government debt
Low personal savings and high debt
Weak, dysfunctional banking sectors
A shortage of skilled workers

'Bond markets are taking their cue from the developed economies, equities from the developing.' Mike Lenhoff of Brewin Dolphin Securities
24 September 2010

Eoin Treacy's view Against this background I thought it might be appropriate to review global stock markets. The Nasdaq-100 has held its September rally impressively and is currently testing the upper side of the short-term range. A sustained move below 1860 would be required to question medium-term upside potential. The Dow Jones Industrials Average has also improved on its September advance and is now testing the April highs near 11,250. Here also a sustained move below the 200-day MA would be required to question medium-term upside potential and to give any credence to some of the more bearish forecasts.

Following the Mid-Autumn festival, the large cap Shanghai A-Share Index has come back with a bang. It has rallied impressively for the last three consecutive sessions and moved back above its 200-day MA today. A break of the six-month progression of higher reaction lows would be required to question medium-term upside potential.

The Stoxx Europe 600 Index remains broadly rangebound but has posted a succession of higher reaction lows since May and these would need to be taken out, with a sustained move back below 250 to question potential for further higher to lateral ranging. Northern European indices such as the DAX, FTSE-100 and OMX are outperforming. Relative laggards such as the Spanish IBEX or the Italian FTSE MIB have steadied in the region of 200-day MAs and would need to take out their short-term progressions of higher reaction lows to question potential for further higher to lateral ranging.

Turkey remains the clear leader in Eastern Europe and continues to extend the breakout to new ground. It is becoming increasingly overextended relative to the 200-day MA but a downward dynamic would be required to check momentum beyond a brief pause. The Polish Index broke upwards to new recovery highs last month and while it is a little overbought in the short-term a sustained move below 42,000 would be required to question medium-term demand dominance.

Following four blistering weeks to the upside the Sensex has slowed somewhat in the region of the 2008 highs and the psychological 20,000. Some further consolidation of recent gains appears likely but a sustained move below the 200-day MA, currently near 18,000 would be required to begin to question medium term scope for a successful upward break.

Indonesia, Thailand, the Philippines and Malaysia all appear susceptible to a mean reversion correction back towards the 200-day MA considering how overextended they are. However, there is no evidence that such a pullback has initiated. Clear downward dynamics, particularly if they occur across a number of markets at once, and/or coincide with significant US Dollar strength would likely signal the onset of such a corrective phase. Singapore has a relatively similar pattern but is much less overbought.

Argentina and Mexico broke upwards to all time new highs in the last month. Brazil is testing its highs while Peru is extending a breakout from a more than yearlong range. Chile and Colombia are both quite overextended relative to their 200-day MAs and look susceptible to a mean reversion correction, although clear downward dynamics would be required to signal the onset of such a pullback. .

These charts indicate that we are currently in a sweet spot for global equity investments which is being supported by an inverse performance by the US Dollar. A number of the best performers are overextended relative to 200-day MAs suggesting this is probably a better time to concentrate on money control discipline than to add to positions.