Since the lows of April all global equity indexes have had a major rally. But the chart data indicates that this is becoming extremely dangerous and investors should not be sucked into the current euphoria of better earnings and anticipated growth prospects.

The Dow is the leading global index.

The rally since April is obvious and for the past two months the Dow appears to have been roaring ahead on decent earnings. Or has it???

In fact the past two months have been a forming a major top pattern. It has the flat base and expanding top typical of the megaphone.

The last upside leg of this pattern is usually strong but the turn around and fall out of the pattern can be even stronger.

Despite the strong new highs that are glorified on CNBC the RSI is nowhere near to a new high setting up a powerful sell divergence on the RSI.

I rate the Dow as A MAJOR SELL.

A move under the 9200 support will trigger a sharp downside move to 8700.

An almost identical broadening pattern plus sell divergence is brewing on the broader based S&P index. It is interesting to note that the PE is 22 for the Dow and 34 for the S&P, and this represents value?? This is another dangerous sell signal.

The NYSE index has the same attributes but I have shown the rally in perspective. It has risen back to test the massive overhead selling area. Also note that in every chart the top oscillators are grouped together at their highs on the second leg of the divergence. This is a dangerous sell signal. This overextended bear market rally in US equity markets is very close to a major reversal back into the bear trend.

The NASDAQ has run even further than the other US indexes. Once again we see all the oscillators grouped together at the top of their range plus a serious sell divergence on the RSI. There is the strong possibility of a rising wedge pattern on the NASDAQ. I must rate this market as even more dangerous than the Dow.

The sell divergence on the AMEX index is even more pronounced indicating that this market has been in a top pattern since June. The implications are exactly the same. The current trend is ready to reverse into a resumption of the major bear market. This is another dangerous index.

The NIKKEI is slightly different. It has not moved to a new short term high with the Dow. But there is still a serious sell divergence on the chart data. This rally should be used as a major selling area.

The FTSE 100 index is similar to the Dow. There is a flat bottom megaphone pattern with a strong sell divergence. In all the charts there is the support level forming the flat bottom to the pattern. Any move under this will trigger major downside counts.

The German DAX is different. There is no sell divergence but the RSI has broken under its major support level. Normal charting interpretations are also applied to oscillators. The implication of this break is that the main uptrend since March has ended. There is the possibility of a head and shoulders top or a double top pattern. Either way this chart is not too healthy.

The Paris CAC 40 is similar to the DAX. There is a minor sell divergence but the RSI has already broken its main support level indicating that the rally since April has ended. The current up move is a serious selling opportunity.

The Sydney All Share index in Australia has been trading inside a major channel since March. But once again all the oscillators at the top are grouped together in their selling range and there is a serious sell divergence on the RSI. Pas op mate!

The Hong Kong Hang Seng index has been trading inside a tight channel similar to the Sydney index. But it is right at the top of the channel with all the oscillators grouped in the selling region at the same time as a huge sell divergence. This is another extremely dangerous index.

CONCLUSIONS

• All global equity indexes are exhibiting serious top patterns.



• In most cases all the oscillators are grouped together at the top of their selling ranges.



• This is coupled with the second leg of a sell divergence.



• There are major support levels.



• Any reversal of the indexes to fall under these support levels will lead to serious downside moves.



• I have been analyzing a major double top pattern for the Rand and looking for a weaker currency going forward.



• The move by the Rand above R7 confirms the potential further weakness.



• This has led to a rocket in many leading index resource stocks.



• I remain extremely bullish on resource stocks.



• BUT I am concerned about the ALSI leaders Anlgo's and Billiton.



• A weak Rand will certainly push these stocks higher.



• But they are also part of major offshore indexes that are looking extremely dangerous.



• Should these indexes fall as anticipated this will have a decidedly negative effect on these two market leaders.



• That is why I have continually advised investors to avoid the dual listed resource stocks and stick to the local resource shares that will not be affected by any global index misfortune.



• I am looking for a serious trend reversal of all leading global equity indexes. This is NOT the time to be piling into equities on the back of supposedly better earnings and prospects.

Dr. Clive Roffey

21 October 2003

chartist@global.co.za
www.shareaction.co.za

Technical Analysis Course : www.charts.co.za
Website analysis : www.utm.co.za
Email : chartist@hotmail.com
Gold Action is a fortnightly commentary on global gold markets produced by Dr. Clive Roffey who has been a leading independent commentator on gold markets since 1969.