W-Street. Bulls to see red in most markets

The year that rolled by turned out to be truly outstanding for most global benchmark indices. Most of the indices travelled northwards, recording new highs. This includes the Dow, S&P 500, Nasdaq Composite, Karachi 100 and Sri Lanka's All Share Index. Some indices were volatile and saw only marginal changes in the year 2014. And of course, the Russian RTSI index journeyed south and recorded a multi-year low in the month of December. But what is in store for the global indices now? Here is the medium-term outlook, based on technical analysis.

The US economic recovery pushed the country’s indices to record highs in the year 2014. The Dow Jones Industrial Average (Dow) gained 7.5 per cent in 2014, the S&P 500 advanced 11.4 per cent and the Nasdaq surged 13.4 per cent. Since the 2009 low of around 6,500, the Dow has been on a long-term uptrend. After touching the 17,000-mark in July 2014, the index started to witness volatile movement.

Currently, the Dow is testing a key resistance at 18,000 levels. A decisive breakthrough of this level will take the index northwards to 18,500 or 18,600 in the medium term. Corrective declines can find support at the significant base level of 17,000. However, an emphatic fall below this level will mar the medium-term uptrend and pull the index down to 16,600 and then to 16,000 in the medium term.

In contrast to the Dow, the FTSE, the benchmark index of the London Stock Exchange, seems a little shaky. After consistently testing the significant long-term resistance in the band between 6,850 and 6,900, the index failed to break through in September 2014. Since then, the index has been on a medium-term downtrend. Last week, it encountered resistance at around 6,650 and began to fall. The index has an immediate support at 6,450 levels. A fall beneath this level will strengthen the bearish momentum and pull the index down to 6,200 and then to 6,050 in the medium term. On the other hand, a rally above 6,650 will encounter key resistances at 6,750 and 6,850 levels. A conclusive break out of 6,900 levels is needed to reinforce bullish momentum and take the index higher to 7,000 or 7,100 levels.

Russia's RTSI (Russia Trading System Index) plunged 60 per cent in 2014 to record a multi-year low of 578 in December 2014, but rebounded to end the year with a loss of 45 per cent. Currency deprecation, rising interest rates and falling crude prices are adding pressure to the index.

The index has been on a long-term downtrend from the 2011 peak of 2,134. In September 2014, the index conclusively fell below the key long-term support at 1,200 levels and extended its downward journey. It is now testing a long-term support at around 750.

An emphatic breach of this level will pave way for a further decline to 630 levels and then to 578 levels once again. The next important support is at 500 levels. Conversely, a rally above the resistance at 850 can push the index higher to 950 and then to 1,000 in the short term. To alter the medium-term downtrend, the index needs to decisively break through the resistance at 1,100 for an up-move to 1,200 or 1,250 in the medium term.

The Shanghai Composite Index gained an impressive 52.8 per cent in 2014. This was likely helped by the launch of the Stock Connect scheme allowing non-Chinese retail investors to participate and buy Shanghai shares for the first time. Buying by pension funds and easing interest rates also helped the rise.

Nevertheless, the rally over the past two months appears to have stretched too much. The index is currently testing a long-term resistance at around 3,200 levels. A negative divergence in the daily indicators and the weekly indictors hovering in the overbought levels imply that trend reversal is on the cards. A downward reversal from this resistance can drag the index down to 3,000 and then to 2,800 levels in the short term. A further fall below 2,800 will strengthen the downward pressure and pull the index down to 2,500 levels in the medium term. An emphatic rally beyond 3,300 levels can take the index higher to 3,400 and then to 3,500 in the same time period.