WORLD STOCK INDEXES ARE TESTING OVERHEAD RESISTANCE AND LOOKING OVER-EXTENDED -- THAT MAY EXPLAIN THEIR BAD REACTION TO TRADE TENSIONS -- WORLD STOCKS HAVE TO CLEAR RESISTANCE LEVELS TO RESUME THEIR 2019 UPTREND

TRADE TENSIONS RATTLE OVEREXTENDED GLOBAL STOCKS ... Renewed trade tensions between the U.S. and China rattled global stocks this week. Stock prices are rising and falling with each news report. After falling sharply yesterday (Tuesday), stocks are rebounding today on more optimistic news reports about the meeting between U.S. and Chinese negotiators later this week. We don't know the outcome of those talks. But we can look at the charts of major global stock markets to see how they look. On balance, they still look positive. But they have one big thing in common. All of the markets shown herein have reached potential overhead resistance while in an overbought technical condition. That's not necessarily bearish. But it may also explain why global stocks have become more vulnerable to trade tensions. Let's start with North America.

U.S. AND CANADIAN STOCKS ARE TESTING PREVIOUS HIGHS...The weekly bars in Chart 1 show the S&P 500 up against the previous record high reached last September. That's a normal spot to expect some profit-taking to emerge. In addition, its 9-week RSI line is backing off from an overbought reading at 70. The weekly MACD histogram bars are still in positive territory above their zero line. But the bars are starting to weaken a bit (red line). [That means the positive spread between the two MACD lines is narrowing]. That usually signals some softening in the market uptrend. Moving average trends remain positive. But the SPX is testing its 10-week average (blue line). Canada is in a similar situation. Chart 2 shows the Toronto Composite Index also in the process of testing potential overhead resistance near last year's highs. At the same time, its RSI and MACD indicators show some softening. That also suggests that the 2019 rally in North America may be overdone. Stocks in Europe and Asia also look vulnerable

Chart 1

Chart 2

STOCKS WEAKEN IN GERMANY, JAPAN, AND CHINA... Stocks in Europe and Asia have been much weaker than in North America; and remain well below their record highs. But they've all reached potential overhead resistance which could be contributing to some profit-taking. Germany is the biggest and most influential market in Europe. The weekly bars in Chart 3 show the German DAX Composite Index backing off from a falling trendline drawn over its 2018 highs. At the same time, its 9-week RSI is overbought and its weekly MACD lines (upper boxes) have softened this week. Asian stocks are in similar situations. Chart 4 shows the Tokyo Nikkei Average gapping lower this week after reaching a 62% Fibonacci retracement line measured from its fourth quarter high to low. Chart 6 shows the Shanghai Stock Index also gapping lower after retracing about two-thirds of last year's losses. Those are all logical chart spots to expect some profit-taking to occur. Prices in all of those markets may improve if trade talks prove successful. But they'll still have to overcome those potential overhead chart lines to resume their 2019 uptrends.

Chart 3

Chart 4

Chart 5

WORLD STOCK INDEXES ARE ALSO TESTING RESISTANCE LEVELS... Tuesday's message showed the MSCI All Country World iShares (ACWI) also testing overhead resistance formed last September. Chart 6 shows that chart again here. The ACWI includes U.S. stocks as well foreign developed and emerging markets. But it's heavily influenced by the stronger trend in the U.S.; and doesn't doesn't give an accurate picture at what's happening in weaker foreign markets. The weekly bars in Chart 7 plot the MSCI All Country World iShares ex US iShares (ACWX). That index gives a clearer picture of this year's rebound in foreign stock markets. But it also shows that the ACWX has reached a potential resistance barrier at its 62% Fibonnaci retracement line, as well as its September high. That may also have contributed to some of this week's nervous selling.

COMBINING CHARTS AND TRADE NEWS... A positive resolution of trade talks would most likely give a boost to global stocks. But stock markets around the world still have to contend with overhead resistance barriers while being in an overbought condition. The real test of the global stock market's strength will be its ability to recover from any short-term setbacks and clear overhead resistance barriers. How global stocks react to news events can tell us a lot about their true technical condition.

Chart 6

Chart 7