FOREIGN STOCKS TEST SPRING HIGH AND MAY BE ON VERGE OF BULLISH BREAKOUT -- SINCE GLOBAL STOCKS ARE HIGHLY CORRELATED, THAT WOULD GIVE A BOOST TO U.S. SHARES AS WELL -- DOW AND S&P 500 ARE TRYING TO CLIMB OVER THEIR 50-DAY LINES
FOREIGN STOCKS NEAR UPSIDE BREAKOUT... Foreign stocks look technically stronger than the U.S. at the moment. Tuesday's message showed EAFE iShares testing their spring high. Emerging markets are rising as well. A more comprehensive measure of foreign stocks that includes developed and emerging markets is shown below. Chart 1 shows the Vanguard FTSE All-World ex-US ETF (VEU) in the process of testing highs formed during the spring of this year. An upside breakout would give a boost to foreign stocks. The dotted line overlaid on the chart is a relative strength ratio of the VEU divided by the S&P 500. As I suggested on Tuesday, foreign stocks have been rising faster than the U.S. (rising ratio) since mid-year after lagging behind the U.S. during most of the past year (because of a falling dollar). After acting as a drag on the U.S. during the first half, foreign stocks are now leading the U.S. higher. Chart 2 shows foreign shares (VEU) in a stronger position than the S&P 500 (the VEU has risen 20% since June versus 10% for the S&P. Since global stocks are highly correlated, an upside breakout by foreign stocks would increase the odds for higher U.S. shares.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
STOCK INDEXES TEST 50-DAY LINE -- APPLE REBOUND BOOSTS NASDAQ ... Charts 4 and 5 show the Dow Industrials SPDR (DIA) and the S&P 500 SPDRs (SPY) testing their (blue) 50-day averages. A decisive close above those resistance lines would be a positive sign for the market. Chart 6 shows the PowerShares QQQ Trust struggling to regain its 200- and 50-day lines. A close over Monday's intra-day high (66.37) would be a positive for the technology-dominated QQQ as well. The Nasdaq market is getting a boost from an impressive upside turnaround in Apple shares. Chart 6 shows Apple (AAPL) scoring another wide-ranging rebound this afternoon in heavy trading. That bounce took place near its spring low (see up arrow). While that's encouraging chart action, Apple still needs to clear this week's high near 594 (and its 200-day line) to turn its trend back up again. That would give the Nasdaq, and the rest of the market, a much bigger boost.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
