FOREIGN STOCK ETFS CATCH UP TO MONDAY'S GAINS -- CHINA AND JAPAN ARE BIGGEST FOREIGN GAINERS -- U.S. STOCKS START WEEK ON AN UPNOTE -- BOND YIELDS CONTINUE TO GAIN AS BOND PRICES DROP
EAFE ISHARES GAP HIGHER... The rest of the world rallied on Monday while the U.S. was closed for Labor Day. Foreign stock ETFs (which were also closed on Monday) are playing catch-up today to yesterday's gains. Chart 1 shows EAFE iShares (EFA) gapping more than 2% higher today and regaining its 50-day line. A lot of that gain is based on yesterday's European gains. A lot of today's gain is also coming from Japan which is jumping sharply. Chart 2 shows Japan iShares (EWJ) gapping 3% higher today. A big drop in the yen is giving a boost to Japanese shares.
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Chart 1
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Chart 2
CHINA LEADS EMERGING MARKET BOUNCE... Chart 3 shows China iShares (FXI) gapping 3.6% higher today and trading above its 200-day average. Strong economic news on Monday gave a boost to Chinese shares and helped other foreign stocks rally. That's giving a boost to emerging markets. Chart 4 shows Emerging Markets iShares (EEM) also bouncing today. The EEM, however, is still trading below its 50-day line. A 4% drop in India's stocks is weighing on the EEM.
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Chart 3
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Chart 4
U.S. STOCKS OPEN HIGHER... U.S. stocks are opening higher today and playing catch-up to yesterday's foreign stock gains. The diminished threat of imminent military action in Syria may also be helping stocks get off to a better start. Chart 5 shows the S&P 500 bouncing today. The SPX, however, remains below its 50-day line. It would have to close above that resistance line to signal a more serious rally attempt. Chart 6 shows the Nasdaq Composite Index also bouncing today. The COMPQ is still holding above its 50-day line. A drop in bond prices may also be aiding stocks.
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Chart 5
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Chart 6
BOND YIELDS RISE AS PRICES DROP ... Chart 7 shows the 10-Year T-Note yield jumping today. The TNX is close to a new yearly high. Bond prices are dropping. Chart 8 shows the Barclays Aggregate Fund iShares (AGG) falling into a test of its 2013 highs. Although some observers view rising bond yields as a negative development for stocks, I have the opposite view. Rising bond yields imply economic strength which is normally good for stocks. In addition, some money coming out of a falling bond market should find its way into the stock market. It remains to be seen if the U.S. stocks are able to hold on to their gains into the close.
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Chart 7
