S&P 500
The S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
The monthly chart of the S&P 500 shouldn't look appealing to the bullish crowd. The S&P 500 is sitting at the top end of the megaphone pattern and with a worrying divergence on the MACD-indicator, signaling that the higher highs in the index have been losing momentum. I don't trade megaphone patterns and I personally don't think we'll be breaking out of this pattern to the downside, but I do think we're heading for some form of a correction here. Closing out positions on longs or initiating short positions wouldn't be such a bad idea.
Even though I don't think a downside breakout will happen, I still like to compare the current chart of the S&P 500 to the chart of the Dow Jones Industrial Average in 1957. The chart is taken from the book 'Technical Analysis of Stock Trends by Edwards & Magee'. The similarities are rather alarming.
DAX 30
The German Stock Index (DAX 30) is a total return index of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange. The equities use free float shares in the index calculation. The DAX has a base value of 1,000 as of December 31, 1987. As of June 18, 1999 only XETRA equity prices are used to calculate all DAX indices.
The monthly chart of the DAX 30 doesn't look that bad. The DAX 30 is sitting at a 3-year long resistance line which could very well breakout out to the upside. However, the MACD is signaling a loss of momentum on each retest of the resistance line and looking at other world indices, I am not confident that the DAX 30 will breakout anytime soon. Even though the current DAX 30 chart doesn't look as bearish as the other indices, I would still be cautious for potential corrections.
CAC 40
The CAC 40 is a free float market capitalization weighted index that reflects the performance of the 40 largest and most actively traded shares listed on Euronext Paris, and is the most widely used indicator of the Paris stock market. The index serves as an underlying for structured products, funds, exchange traded funds, options and futures.
Just like the previous two charts, the monthly chart of the CAC 40 shouldn't look appealing to the bullish crowd either. The CAC 40 is sitting at multiple resistances. The ascending trendzone that is being retested, the 50-month simple moving average and the 61.8 Fibonacci zone are all currently acting as a resistance. It'll be a difficult feat for the CAC 40 to break those three levels to the upside. My outlook for the next few months is a declining CAC 40. Definitely a good time to either close out your longs on French stocks or to initiate some short positions.
