The financial press is full of comments about how unusual it was that markets rose so strongly last week in spite of some of the worst news for global economies, and particularly the U.S, economy, in many months.
Even perpetually bullish TV financial show anchors, who can usually see positives in any negative report, seemed baffled, asking guests, “Can you explain what is going on? How can the market keep going up in the face of all the bad news? Why did the market reverse so sharply into a rally with the news actually getting worse?”
The technical charts may have the answer.
Markets in Europe and the U.S. that seemed to top out in mid-February, plunged further in almost panic-like selling in reaction to the disaster in Japan.
As I noted in my post a week ago Friday, that had them extremely oversold short-term beneath their 50-day moving averages, and primed for at least a short-term oversold rally. Oversold rallies are usually going to take place regardless of surrounding fundamental conditions.
So what has happened so far?
In Europe, the major markets of Germany, England, and France, bounced back sharply this week, but remain somewhat below their 50-day m.a.’s.
In the U.S., it’s a more mixed picture. The Dow and S&P 500 also rallied back strongly and managed to close yesterday fractionally above their 50-day moving averages, while the Nasdaq closed right at the potential resistance.
So did U.S. and European markets top out mid-February into an intermediate-term correction, or was it just a five-week pullback?
Similarly, the major global indexes that topped out five months ago (in November), and which subsequently broke beneath their long-term 200-day moving averages, also sold off further in reaction to the disaster in Japan, and then rallied sharply this week. But they rallied only back up close to the potential resistance at those long-term moving averages.