3 Charts That Suggest Global Equities Are Headed Lower

Global markets have bounced sharply since bottoming on the panic selling in March. While many people around the world are discussing the prospects that markets could continue the upward momentum, trend traders are likely taking note of the amount of resistance piling up near current levels and starting to tighten stop-losses.

SPDR SSGA Global Allocation ETF (GAL)

Active traders who want to get a sense of where world markets are headed often turn to exchange-traded funds (ETFs) such as the SPDR SSGA Global Allocation ETF (GAL). For those who are unaware, the fund's managers seek to invest in a diversified mix of asset classes from around the world. More specifically, the index covers approximately 99% of global equity markets.

Taking a look at the chart, you can see that the fund is trading near the significant resistance illustrated by the horizontal trendline. This level has proven to have a strong influence on behavior in the past, and followers of technical analysis will expect this to continue. Even small setbacks in upward momentum will likely be regarded as a waning of bullish conviction and could act as a catalyst for a move lower. March's sharp sell-off also triggered a bearish crossover between the 50-day and 200-day moving averages, which will also likely be used by long-term traders as an indication that a longer-term move lower could just be getting underway.

Chart showing the share price performance of the SPDR SSGA Global Allocation ETF (GAL)


With the U.S stock market consisting of the largest companies in the world, it is unsurprising that the SPDR S&P 500 ETF (SPY) is the largest holding of the GAL ETF. With a weighting of 20.04%, it is a good starting point for investors looking to get an understanding of large-cap global equities.

As you can see below, the sharp bounce from the March lows has sent the price of the fund toward the long-term resistance of its 200-day moving average. The breakdown has also triggered a bearish crossover between the long-term moving averages, shown by the blue circle, which is known as the death cross. This common sell signal is often used by followers of technical analysis to mark the beginning of a primary downtrend. The retracement toward $300 could be used by bearish traders to re-enter their positions, placing stop-losses above the psychological resistance level in case the bullish momentum is able to resume.

Chart showing the share price performance of the SPDR S&P 500 ETF (SPY)


When analyzing world markets, it is often natural for investors to want to remove the sizable influence of U.S. equities. One common fund that is used for this purpose is the SPDR S&P World ex-US ETF (SPDW), which is also the second top holding of the GAL ETF.

As you can see below, the pattern looks very similar to those shown above. More specifically, bears will likely look to enter a position as close to $27 or $28.37 as possible depending on risk tolerance. Stop-losses will most likely be placed above the 200-day moving average in case bullish momentum continues to surprise.


The Bottom Line

Based on the patterns discussed above, the common theme of a major trendline acting as resistance and a bearish crossover between long-term moving averages are likely to dominate market direction over the coming weeks. Active traders will likely hold a bias to the downside until prices are able to break above the identified resistance levels and until key technical indicators turn positive again.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

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