FOREIGN MARKETS ARE STILL HOLDING UP BETTER THAN THE US
S&P 500 CLIMBS BACK OVER 50-DAY LINE -- FOREIGN ETFS ARE EVEN STRONGER ... Chart 1 shows the S&P 500 climbing back over its 50-day moving average in afternoon trading. That's a positive sign and suggests that the short-term decline of the last month has been contained for now. At the very least it changes the short-term trend from down to neutral. While the U.S. market is struggling to stay above that support line, most foreign markets haven't even come close to breaking theirs. Chart 2 shows that the EAFE Index iShares (EFA) have stayed well above their 50-day line throughout the latest pullback. [EAFE stands for Europe Australia and Far East stock markets]. Its relative strength ratio (against the S&P 500) has been rising for the last three months and held steady over the last week. The same pattern of foreign outperformance is seen in Chart 3 which plots the MSCI Emerging Markets iShares (EEM). While all of the world's stock markets experienced minor pullbacks over the last week, they're starting to climb again. None of the foreign markets have violated their 50-day lines. That may be good news for the U.S. market since there's usually a positive correlation among global markets. But it's better news for foreign stocks.
Chart 1
Chart 2
Chart 3
JAPAN HOLDS AT 50-DAY LINE ... The Japan iShares (EWJ) have lost some ground since the start of the new year. That can also be seen in its relative strength ratio which has been flat since the start of January. Chartwise, however, no serious damage has been done. The EWJ is finding support along its 50-day average for the second time in a month (see arrows). In fact, the pattern is beginning to look more like a short-term "symmetrical triangle" which usually means there's another upleg in the offing. [A symmetrical triangle is marked by two converging trendlines]. It just so happens in this case that the lower (orange) trendline coincides with the (blue) 50-day moving average. That makes the 13.50 level an even more important support point.
Chart 4
CANADA ISHARES ALSO HELD UP OKAY ... Another foreign market that I've written about lately is Canada. I've made the point that Canada is benefiting from rising commodity markets and a strong Canadian Dollar. While the Canadian Dollar remains one of the world's strongest currencies, commodity markets did take a hit earlier in the week (although they're bouncing again). Tuesday's commodity swoon caused some heavy selling in Canada iShares (EWC) as witnessed by the heavy volume bar. But no serious price damage was done. Other foreign markets with heavy commodity exposure include Australia and Latin America.
Chart 5
MORE COMMODITY PRODUCERS ... Latin America has been one of the world's strongest regions over the last year and has ridden the coattails of the commodity uptrend. It wasn't surprising therefore to see Latin America IShares (ILF) slip along with commodity markets over the last week (Chart 6). Here again, however, little chart damage was done and the region is bouncing today along with most other global markets. Australia took a slightly bigger hit (which may have been partially caused by a drop in the Australian Dollar). That can be seen by the drop in the EWA/S&P ratio over the last week (down blue arrow in Chart 7). But the Australia iShares (EWA) are bouncing off their 50-day line. The ability of these commodity-producing markets to shrug off their recent decline is a hint that the commodity uptrend is still intact despite this week's pullback. It also suggests that the global stock market uptrend is intact. The main point of this message, however, is that foreign stocks continue to do better than the U.S.
Chart 6
Chart 7
