Milling about for two years

JSE top 40 index has not gone anywhere as a whole, though sectors differ widely

he JSE top 40 index is trading at about the same level as it was in June 2014, two years ago. The market has been range-bound between 42,000 and 49,000 over the past two years. That’s a broad range but the fact is that the overall market has basically gone nowhere for the past two years.

The sideways positioning of the 50-week moving average is an indication of the fact that the market has been going sideways for a lengthy period of time. It takes 50 weeks of no average price movement for a 50-week moving average to go flat in the way that it has for the top 40.

That’s not to say that there hasn’t been plenty of movement in the market below the surface, however. Since mid-2014 the JSE industrial index has been the leading performer with a gain of 22%. The financial index has managed a paltry 4% gain over the same two-year period. However, it is the resources index that has really let the market down with a loss of 46% since the middle of June 2014.

With such vastly different sector performances, it is not easy to throw a blanket over the whole market and say that it is in a bull market or a bear market.

The broad top 40 index is in a sideways range, but the sectors within the overall market have exhibited both bull market and bear market characteristics. If your portfolio has been aligned with the industrial index then you would have experienced a bull market over the past few years. However, if your portfolio was aligned with the resources index

Tthen you would have experienced a bear market over that time. As for the top 40’s future direction, it is not clear whether the 49,000 resistance will break to the upside first or whether there will be a deeper pullback towards the lower boundary at 42,000 first. Either scenario is possible and will likely be guided by trading action on international markets.

While this sideways range is in place on the JSE top 40, this remains a stockpicker’s market. he EuroStoxx600 represents large, mid and small cap companies across 18 countries in the European region. It is a broad-based index and is a closely watched measure of European equities.

The heaviest weighting in the index is to stocks listed in the UK (30% weight), followed by France (15.3%), Switzerland (13.9%) and Germany (13.5%). The remaining weightings are small and are composed of exposure to Spain, Sweden, Netherlands, Italy, Denmark and Belgium.

There is a fixed number of 600 stocks in the index. From a technical perspective, this index broke below its bull market upward trend in December 2015. At that point, the 50-week moving average also began to turn downwards.

Since the January lows, the index has been consolidating in a small rising wedge pattern. These are typically bearish continuation patterns within a downtrend and they usually break downwards.

Another pattern that is evident is a potential head & shoulders pattern that has been forming since early 2014. The neckline of that pattern is at 320 on the index. A break below that neckline would be a bearish development and would confirm the top that has been forming over the past two and a half years. A break below 320 would open the next level of support at 280.

Overall, while the 50-week moving average is pointing downwards and the price is below the seven-year bull trend, the risks are to the downside on the Stoxx600 Europe Index.