After a brisk bear market rally in October, global equity indexes have now stalled. The Dow Jones World Stock Index reached the key resistance level of 244 and retreated under growing selling pressure (Chart 1).

The S&P 500 has displayed the best relative performance over the past four weeks compared to world markets. European and Asian indexes have fared the worst.

Global markets continue to trade on a stable 14-16 week cycle (Chart 2). With the October 28th high as the probable peak in this cycle, the expectation is for building downward pressure over the remaining 7-8 weeks and a low in early January at or below the early October levels.

Bottom line: Today's strong sell-off in equities suggests the bear market rally has now peaked and downward pressure can be anticipated until the low in early January. As global markets are tightly coordinated, all indexes are expected to drift lower over the next 7-8 weeks.

Investment approach: Traders may wish to hold off on any long positions until the next bear market rally in January. Longer term investors are advised to keep a defensive stance until there is evidence of the bear market bottom. This generally occurs once the market tests a support level two or three times.

More market research will be in the upcoming November newsletter.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2011 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present. He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms. He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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