World Markets Update: Negative Skew And Nikkei Plunge

Six of the eight indexes on my world watch list posted declines for the week, with Japan's Nikkei 225 plunging 4.98%. India's SENSEX was the top performer, up 0.98%, with the China's Shanghai Composite up 0.68% based on a single day of trading because of the National Day market holidays, which extend through October 7th. Despite the US government shutdown, the S&P 500 suffered the least decline, a fractional 0.7%, with the other world four markets slipping between 0.30% and 0.90%.

The Shanghai Composite remains the only index on the watch list in bear territory -- the traditional designation for a 20% decline from an interim high. See the table inset (lower right) in the chart below. The index is down 37.36% from its interim high of August 2009. At the other end, the DAXK and CAC 40 are virtually neck-and-neck for smallest percent off high, with the S&P 500 2.03% off its all-time high set the two weeks ago.

Here is snapshot of the YTD performances, with the volatile Nikkei as the ongoing attention-grabber.

For the past several weeks I've included a daily chart of the Nikkei with its Fibonacci retracement highlighted. The behavior of the index against this metric remains fascinating. On Thursday and Friday of last week the index dropped below the Fib 50% level, which coincided with the Friday intraday high. This Fibonacci "jungle gym" continues to be a feature of the Abenomics playground.

Here is a table highlighting the 2013 year-to-date gains, sorted in that order, along with the 2013 interim highs for the eight indexes. The strong performance of the Japan's Nikkei, despite its big correction and subsequent volatility, puts it solidly in the top spot with a 34.91% YTD gain but well below its peak gain of 50.33%. Only the Shanghai Composite remains in the red YTD.

A Closer Look at the Last Four Weeks
The tables below provide a concise overview of performance comparisons over the past four weeks for these eight major indexes. I've also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.

The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500, CAC 40 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October 27, 2008. However, by aligning on the same day and measuring the percent change, we get a better sense of the relative performance than if we align the lows.

A Longer Look Back
Here is the same chart starting from the turn of 21st century. The relative over-performance of the emerging markets (Shanghai, Mumbai SENSEX and Hang Seng) up to their 2007 peaks is evident, and the SENSEX remains by far the top performer. The Shanghai, in contrast, formed a perfect Eiffel Tower from late 2006 to late 2009.

Check back next week for a new update.

Note from dshort: I track Germany's DAXK a price-only index, instead of the more familiar DAX index (which includes dividends), for constency with the other indexes, which do not include dividends.