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Germany’s Dax enters leading quadrant | Relative Rotation Graphs

Our big-picture snapshot of global stock markets has changed significantly over the past week. The Relative Rotation Graph (RRG) below shows that Germany’s Dax and France’s Cac 40 have travelled in to the leading quadrant, while Europe’s Stoxx 50 is moving towards that area. 

The FTSE 100 (UKX), Japan’s Nikkei (NKY) and Australia’s ASX 200 (AS51) remain in the leading quadrant, indicating that they are outperforming our benchmark, the MSCI World Index. Our data suggest that this trend is likely to continue over the coming weeks.

As for US markets, the Dow (INDU) and S&P 500 (SPX) are hovering near the centre of the chart, indicating their close correlation to our benchmark. The Nasdaq 100 (NDX) is in the lagging quadrant and heading to the left, indicating that its performance relative to the benchmark is deteriorating. The chart’s other US index, the small-cap Russell 2000 (RTY), has also crossed in to the lagging quadrant. Collectively, US indices are performing poorly. There is no sign of market outperformance here. 

However, there may be interest in pairing one of the above-mentioned relative outperformers, such as the UKX, against the underperforming NDX. This type of pair-trading opportunity shows up very clearly on our proprietary RRGs.

FTSE 100 benefiting from strong US dollar

Stock indices generally appear weak at the moment. However, one of the better-looking markets is the UK’s FTSE 100 (UKX), which is benefiting from a strong US dollar. The index is home to a high concentration of exporters that earn income in US dollars. The FTSE 100 has been trading in a tight range between a crucial support level at 7,000 and overhead resistance at 7,700. 

Nasdaq remains weak

In contrast, the Nasdaq 100 (NDX) is in a steep down channel. It is about mid-channel at time of writing. There is some support at 12,000, and a low at 11,000. The relative strength indicator (RSI), shown below the price chart, remains weak and not oversold. 

Pair a thought?

Based on our tracking of global markets, we continue to see the UKX, NKY and AS51 as the indices that are best placed to hold up well in the near term. 

US indices like the Dow and the S&P 500 are moving broadly in line with the MSCI World Index, while the Nasdaq and Russell 2000 are faring worse. Mainland European indices are improving in relative terms and worth monitoring. To sum up, our charts suggest that a possible trading idea could be to pair up the UKX and NDX.

Pricing is indicative. Past performance is not a reliable indicator of future results. RRG’s views and findings are their own and should not be relied upon as the basis of a trading or investment decision.

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