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Stock market indices are only good for headline news

Tong Kooi Ong Published on Fri, Apr 06, 2018 / 4:51 PM GMT+8

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SINGAPORE (Apr 9): The global stock market selloff, which dragged many bellwether market indices into the red in 1Q2018, continued to hold sway as we entered the second quarter. With volatility staying elevated amid myriad uncertainties — notably on global trade and tech industry regulations — the question on the forefront of investors’ minds is “Are we near the bottom yet?”

For those reading the charts, the signs are ominous. Last week, the Dow Jones Industrial Average (Dow) breached its 200-day moving average, albeit briefly, in intraday trading. If it closes below this key psychological support level, that will put it in bearish territory for technical analysts. Not so long ago, the Dow was making successive record all-time highs. It has certainly been quite a reversal in a little over two months.

The Dow is the world’s most closely watched benchmark index and a leading indicator for all other stock markets. So, understanding how it works — and therefore, how useful it actually is as a predictive tool — is important.