BRITISH POUND AND UK STOCKS STRENGTHEN -- UK ISHARES HIT SEVEN- MONTH HIGH -- EUROPEAN SHARES ARE ALSO RISING -- DOW JONES EUROPE INDEX LOOKS TO BE BOTTOMING -- WEEKLY CHART OF WILSHIRE 5000 COMPOSITE STOCK INDEX STILL LOOKS POSITIVE
STERLING SHOULD BE BOTTOMING... I'm going to take the chance of ignoring the British vote on Thursday and concentrate instead on the charts themselves. If it's true that markets have a way of discounting (or anticipating) events, that's the best we can do. The British Pound is ground zero in the current situation. So let's start there. I'm going to look at it in three different time dimensions, and all three have a positive look to them. The daily bars in Chart 1 show the Pound gapping higher this week and in the process of challenging its May highs and its 200-day moving average. That's an extremely important test. It's short-term RSI and MACD lines are positive. Longer-range charts also have a positive look to them. The weekly bars in Chart 2 show sterling trying to reverse its two-year downtrend. It would have to clear the falling trendline to accomplish that. The 14-week RSI line (top of chart) has crossed over the 50 line which is positive. Weekly MACD lines (below chart) are also positive. The monthly bars in Chart 3 show the British currency in a potential support zone along its 2009 lows. Monthly RSI and MACD lines are close to turning positive. Putting it all together, I'd say that technical odds favor higher prices for the pound. That would be very good news for British and European stocks, as well as ours.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
(click to view a live version of this chart)
Chart 3
UK ISHARES LEAD FTSE HIGHER... British stocks also look positive from a charting standpoint. Chart 4 shows MSCI UK iShares (EWU) rising above their May high to the highest level in six months. [Since the EWU is quoted in dollars, it's getting a boost from the rising pound]. Its 50-day average is also crossing above its 200-day which is a bullish sign. Chart 5 shows the London Financial Times Index ($FTSE) trading higher as well. The FTSE 100 appears on the verge of clearing its May high which would put it in position to challenge the "neckline" drawn over its October/April highs. Its daily and weekly RSI and MACD lines (not shown) are positive. In addition, the blue 10-week average has crossed above the red 40 day line. Chart 5 looks to me like a market that's in the process of forming a bottom and getting ready to move higher. A close above the "neckline" would be a very bullish sign.
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
EUROPE IS ALSO LOOKING BETTER... The weekly bars in Chart 6 show the Dow Jones Europe Index trying to recover from a two-year downside correction that started in the middle of 2014. To start with, the index is bouncing off potential chart support along its 2012 high (see trendline). It's weekly RSI line (top of chart) is showing positive divergence from oversold territory near 30. And its weekly MACD lines (below chart) have turned up. The shape of the two-year correction is also positive. Downside corrections usually take place in three waves (A,B, and C) which are marked off on the chart. That increases the odds for higher prices in Europe. The daily bars in Chart 7 show the Dow Jones Europe Index (which includes the UK) trading above its 50- and 200-day moving averages today. A move above its spring highs would be a very strong sign.
(click to view a live version of this chart)
Chart 6
(click to view a live version of this chart)
Chart 7
WILSHIRE 5000 COMPOSITE INDEX STILL LOOKS POSITIVE... Sometimes it's better to step back from day to day market swings and focus on the bigger picture for U.S. stocks. And to me, the bigger picture still looks good. Chart 8 shows weekly bars for the Wilshire 5000 Composite index ($WLSH) which is the broadest measure of the U.S. stock market. Chart 8 clearly slows the 3 wave correction that started last summer and ended in February. It has since risen above its June/November down trendline and remains above its moving average lines. In addition, the blue 10-week average remains above the red 40- week line. Its 14-week RSI line (above chart) remains above the 50 line. And its weekly MACD lines (below chart) are firmly positive and have both moved back above their zero line. Those positive chart indications should override whatever short-term volatility may take place on the daily chart. The bigger picture still favors higher stock prices.
