Bounce or crash, that’s the question.

Here’s the latest chart of the 5-day average equity put:call ratio. Option markets have done a lot to correct the historic extreme in complacency that we saw in April.

Indexindicators.com

Stocks are still only moderately oversold on a daily scale. RSI has made a sort of double dip into oversold territory, and MACD has also turned down to almost reach a downsloping support line formed by declines over the last 12 months. At some point this year all support should be smashed, but it would be rare to crash right from the very top. A relief rally would clear things up a lot and offer a great chance to get short.

Stockcharts.com

In contrast to the US markets, look at the extreme oversold condition in several major global stock indexes.

6-month Nikkei chart:

Bloomberg

The Eurostoxx 50 index:

Bloomberg

And here’s a 2-year view of a bunch of emerging markets ETFs. These I suppose could keep rolling over into a waterfall, but I’m not sure we’re at that stage yet.

Yahoo! Finance

Global stock indexes running on fumes

When I’m looking at larger trends I like to visit the Bloomberg global stock market pages, rather than stare at the Dow all the time. To that end, here’s a tour of a few indexes from outside the US.

The German DAX always looks like the S&P 500. 5-year view:

Source: Bloomberg, for all charts.

Brazil’s Bovespa, 5-year view. Looks like a huge double-top. Note, the February decline busted the uptrend, and there have been no new highs since January:

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Madrid’s IBEX 35 has been struggling:

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The Athen’s stock exchange is even weaker of course:

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Here’s the Russian Trading System index, possibly stalling out at a typical retracement level for a post-crash bounce:

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The Swedes are feeling frisky, with a recent pattern that looks like the high-flying secondaries in the US:

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Moving east, we see that Chinese stocks topped back in November:

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The Nikkei’s bounce has been pretty weak relative to most others, and its ascent has been shallow and wobbly since last June:

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Nothing looks particularly bullish about the Australian stock market. Its top so far remains back in January, and it’s only barely higher than last October. What will happen when their real estate bubble pops?

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Here’s India’s Nifty Fifty, back near peak bubble levels and asking for another wallop. Not much reward for a whole lot of risk here since October.

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The general impression here is that these markets have simply made giant bear market rallies as part of a de-risking process from the euphoria of 2005-2007. There is no fundamental value in stocks at these prices (the S&P 500 is yielding under 2%, and that’s among the better returns out there), and if I am gauging mood correctly we are not beginning another great bubble but still deflating the last one.

During the winter of 2008-2009 a lot of these indexes formed solid, tradeable bottoms that were tested repeatedly (look at 2500 above in the Nifty for instance) or outright divergences (see the Bovespa). This was a strong clue that we were firming up for a rally to correct the whole decline, despite the US dipping to a deep new low in March. Well, we have pretty strong resistance levels and divergences since fall in many of these indexes, perhaps warning us not to take the highs in the Nasdaq and Russell 2000 too seriously. After all, there is no more speculative market than China, and it’s been very weak for almost six months. Even the crazy Bovespa, though back at nosebleed levels, has not made any headway since December. Greece has already crashed again, and Spain is thinking about it.

A year ago, there was a wonderful technical case for being bullish. That’s now completely gone, and in my opinion we now have nearly as strong a case for being bearish. These markets are more overvalued, more overbought and technically weaker (broken up-trends, waning momentum ) than at any point since late 2007. It is astonishing that they have rebounded as far as they have, but that does not mean that they will continue – given the character of the advances since last summer, these heights only provide more potential energy for the next decline.

Bubblicious

The Indian stock market since 1990:

Source: http://www.nseindia.com/

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I suspect that this market will end up back at 2002-2003 levels. Manias like this tend to be completely retraced, like the oil bubble from ’04 to ’08, which sports a similar chart to the above, complete with a big B-wave bounce that should be peaking soon, though by looking at this chart alone I wouldn’t rule out $80:

Source: http://futures.tradingcharts.com

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Thought I’d take a look at some other wild markets:

Russia’s RTS:

Source: http://www.rts.ru

Russia hasn’t made much of a retracement, only about 25%, but if the US markets fall from here you can bet it will join them.

Shanghai is ready to rumble (about a Fibonacci 38% retracement, just like the S&P 500):

Yahoo! Finance

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Brazil’s Bovespa – about a Fibonacci 62% bounce:

Bloomberg.com

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Why not check out the Swiss? Ok, they’re not so wild — just a 33% retracement here, but a remarkably similar pattern to the S&P 500. Also, it is worth noting that the Franc went from roughly $0.83 to $0.93 over this period, so this was a much larger rally when priced in dollars, like many of the other foreign markets.

Bloomberg.com

WIth foreign markets sporting high valuations and high exchange rates, it looks to me like the US dollar is going to be where it’s at going forward. Shorts that capture the exchange rate movement along with stock moves would be attractive.