Top-Performing Emerging Market Sends a Slew of Bearish Signals

  • Turkey's momentum, relative strength, Fibonacci, point down
  • Benchmark looking for support following best rally since 2014

Turkey’s stock market, one of the world’s top performers this year, may be heading into a downturn, several indicators followed by technical analysts show.

Buffeted by political strife, fear of terrorism and inflation of almost 9 percent, the benchmark Borsa Istanbul 100 Index’s rally is sputtering after its best eight-week run since mid-2014.

“The main driver behind the rally in the past weeks was the positive sentiment globally toward emerging markets,” Gulsen Ayaz, a director of institutional equity sales at Deniz Yatirim Menkul Kiymetler in Istanbul, said by e-mail. “Factors that fueled higher appetite for risk are now fading, coupled with investors’ focus intensifying on domestic issues including increased security risks.”

Here’s a look at some increasingly bearish technical indicators.

The benchmark’s moving average convergence divergence lines suggest the rally is losing momentum. The MACD analysis plots the difference between longer- and shorter-term moving averages and then uses the moving average of that line, known as the signal line, to find turning points. This chart shows that the index is close to a bearish one and how it has performed in the past after that happens.

The same measure can be used to analyze the index’s member stocks to see how many have sent buy and sell signals recently. Since March 7, bearish signals have outnumbered bullish ones.

Given the rally, it’s not surprising that many stocks are trading above their 50-day moving averages. Last week, 94 percent of them were at such levels. Look at how the index performed after that happened in the past.

Technical analysts watch the relative strength indexes of stocks and benchmarks to see whether they are overbought (above 70) or oversold (below 30). Securities usually don’t stay in either range of this velocity measure for long. The line increasing above 30 from below is considered a bullish signal. Likewise, falling below 70 from above is bearish. That just happened.

Fibonacci retracement lines show what percentage of a loss a security has recovered from a low to a high. Certain percentages tend to act as support and resistance levels, so breaching one is significant. The Turkey index just fell below the key 61.8 percent line and is now testing the 50 percent line. The recent rally also had pushed the gauge through a downward trend line that had been acting as a resistance level. It failed to provide enough support on Wednesday, when the fell below it.