JAPAN ISHARES HIT 2005 HIGH -- FOREIGN ETFS LEAD AUGUST RANKINGS -- FOREIGN CURRENCIES ARE GAINING

EXCEED MARCH HIGH ... Last Monday I wrote a bullish story on the Japanese stock market. At the time, the Nikkei 225 was breaking out to a new four-year high. I suggested that Japan iShares (EWJ) were about to do the same. They're almost there. Chart 1 shows the EWJ breaking through the March high at 11.10 to record a new 2005 high. The recent rally has been accompanied by rising volume. The EWJ:SPX relative strength line has been jumping during August as well. Japan remains the top-gaining foreign ETF during the month of August. Chart 2, which is an updated version of the chart I posted last Monday, shows that the EWJ is close to breaking out of a bullish "ascending triangle" that's been forming since last spring. The EWJ is benefiting from the four-year year high in the Nikkei and a rising yen.

Chart 1

Chart 2

JOHN'S LATEST PERFORMANCE CHART ... Chart 3 is taken from "John's Latest Performance Chart" which can be found on the John Murphy page. It ranks the best and worst performing Exchange Traded Funds during the month of August. Coincidentally, it's also a combination of foreign and domestic ETFs. The leaders to the left of the S&P 500 (which is plotted as the zero line) are Japan, UK, Canada, Brazil, Australia, and Germany. All have done better than the S&P 500 during August. The two worst August sector ETFs to the far right are domestic -- REITS and retailers. REITS have been hurt by the threat of rising bond yields. Retailers are suffering from rising gasoline prices. One of the messages from Chart 3 is that foreign ETFs are a better place to be than the U.S. That's partially due to a weaker dollar.

Chart 3

FOREIGN CURRENCIES HAVE A STRONG AUGUST ... One of the reasons for the strong August showing by foreign ETFs is seen in the three foreign currency charts. That's because foreign stock ETFs benefit when their currencies are rising against the dollar. The chart action of the Euro and the yen look pretty similar. Both climbed above their 50-day moving averages during August turning their short-term trends higher. After last week's pullback, both foreign currencies are bouncing off their 50-day lines today. That means the dollar is dropping. That's boosting their stock ETFs (which are priced in dollars). The strongest of the three is the Canadian Dollar (Chart 6). The loonie is trading above its 200-day average. That's one reason why Canadian iShares have been doing so well of late.

Chart 4

Chart 5

Chart 6