GREEK NO VOTE PULLS GLOBAL MARKETS LOWER AGAIN -- FOREIGN SHARES LEAD US LOWER -- FALLING ENERGY SHARES LEAD TO PLUNGE IN CRUDE -- FALLING CHINESE STOCKS HURT COPPER AND AUSSIE DOLLAR --
FOREIGN STOCK ETFS TUMBLE ... Today's plunge in global stocks is reminiscent of what happened last Monday. Except the global downturn in getting more serious. Although U.S. stocks are falling, foreign markets are falling a lot more. Chart 1 shows EAFE iShares (EFA) falling more than 2% to the lowest level in four months. EAFE has also fallen below its 200-day moving average. EAFE includes developed stocks in Europe, Australasia, and the Far East. All three regions are being hit hard today. Eurozone stocks are falling especially hard, as are Asian stocks. Commodity producers are also being hurt by plunging copper and crude oil prices. Australian stocks (and currency) are also being hit hard by falling Chinese stocks. Money is moving into traditional safe havens like the yen, gold, and Treasuries. Emerging markets are also falling. Chart 2 shows Emerging Markets iShares (EEM) falling -3% to the lowest level since March. Falling commodities are weighing on Brazil and Russia. Plunging Chinese stocks are also hurting commodities.
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Chart 1
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Chart 2
DOW BACK BELOW 200-DAY AVERAGE... U.S. stock index aren't falling as far as foreign stocks, but they are in danger of breaking support levels as well. Chart 3 shows the Dow Industrials trading back below their 200-day average. Chart 4 shows the S&P 500 retesting that important support line. Small caps stocks, which have held up better than large caps, are also rolling over. Chart 5 shows the Russell Small Cap Index falling below its 50-day line for the first time since May.
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Chart 3
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Chart 4
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Chart 5
FALLING ENERGY SHARES LEAD TO PLUNGE IN CRUDE... Energy shares are once again the weakest part of the stock market. Chart 6 shows the Energy Sector SPDR (XLE) falling to the lowest level since March. Back in May, I showed the XLE falling below its 50-day average after failing a test of its 200-day moving average. I suggested that was an early warning that crude oil would follow energy stocks lower. That has finally happened. Chart 7 shows the United States Oil Fund (USO) plunging 7% today to a three-month low. Chart 8 shows the price of copper plunging nearly 5% as well. That's most likely tied to the plunge in Chinese stocks. Copper prices started tumbling along with Chinese stocks during June. Copper also has a close correlation with the Australian Dollar which has tumbled to the lowest level in six years. Australia is also closely tied to Chinese fortunes.
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Chart 6
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Chart 7
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Chart 8
FALLING FOREIGN STOCK AREN'T GOOD FOR U.S.... Although the U.S. stock market should hold up better than foreign stocks, weakness there usually leads to weakness here. That's why it's important to follow chart trends in foreign markets. Chart 9 shows the Vanguard FTSE All-World ex-US ETF (VEU) falling below its 200-day moving average today. The VEU includes foreign developed markets (including Canada) and emerging markets. Notice that April/May peak in the VEU stopped right at the high hit last summer. That signaled a possible rally failure which has gotten much worse since then. Why that's important is that the VEU is highly correlated to U.S. stocks. The black line below Chart 9 plots the 60-day Correlation Coefficient between the VEU and the S&P 500. It currently stands at 0.77%. [The 20-day Coefficient is even higher at 0.89%]. That increases the odds for more selling in the states. I've been showing a number of negative divergences in the U.S. market. Add the VEU to the list.
