The Really Big Picture

11th September 09 – The really big picture

Two days ago this diary covered the story of a resurgent UK stock market and gave passing reference to some global markets. Since then I have been searching for a really big picture to reinforce a view that the credit crunch crisis is actually turning the corner on a global scale.

What I have found is the Morgan Stanley Countries Index (MSCI) World Index. This index tracks the composite of 22 component stock markets, alphabetically starting with Australia and ending with the USA. The vital factor is the moving average and specifically the 50 day and 200 day. The graph starts in January 98 and progresses quarterly.

The theory is that when the 50-day moving average rises above the 200 day one, equity investors have good vibes and when the opposite occurs, it is time to sell. Looking back at the two trend lines, one certainly could have done worse than to follow this rule doggedly. From January 98 to October 00 the signal (with one exceptional quarter) was “buy.” From then until June 03 it was a “sell” phase. But then the lines turned again and one would buy equities until February 08 (recall that that was the boom phase) before getting well and truly out of the markets until – guess when? August 09.

Anyone actually following the graph closely would have spotted the 50 day line turning sharply upwards from March 09, when of course the rally started. The big message though is that the time to buy equities on any of the 22 world stock markets has returned. Furthermore, the indexes that monitor buying activity support a view that the worst is over (see entry to come dated 14th September).

Pearl of the week

“The majority of cars made in the UK are exported abroad.”

Angela Monaghan reporting in the Daily Telegraph