EEM ISHARES BOUNCE OFF 2011 LOW -- EAFE ISHARES ALSO HOLD SUPPORT -- OVERSOLD CANADIAN STOCKS REBOUND -- U.S. STOCKS HAVE STRONG DAY TO STAY WITHIN RECENT TRADING RANGE -- BOND YIELDS BOUNCE AS MONEY LEAVES BONDS FOR STOCKS -- VIX RETREATS ANOTHER 10%
EMERGING MARKETS BOUNCE OFF CHART SUPPORT... Within the exception of Japan, global stocks are bouncing nicely today. It started in Asia with a rebound in Chinese stocks. That gave a much needed boost to emerging markets. And it may be coming just in time. The monthly bars in Chart 1 shows Emerging Markets iShares (EEM) bouncing off potential chart support at its late 2011 low. That's an important support level for obvious reasons. The EEM needs to stay above that 2011 trough to prevent it from suffering a major chart breakdown. That wouldn't be good for anyone. The ability of the EEM to hold above that support raises some hope that the recent global selloff can be contained. China will have a lot to do with that.
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Chart 1
EAFE ISHARES ALSO BOUNCE OFF SUPPORT... The world's developed markets are also holding chart support. The monthly bars in Chart 2 show EAFE iShares (EFA) bouncing off three important support levels at the same time. [EAFE includes developed market stocks in Europe Australasia and the Far East]. The first is the flat blue line at last October's low. The second is the rising support line drawn under its 2009/2012 lows. And the third is the red horizontal line drawn over its spring 2011 high. There again, the ability of EAFE to hold above those support levels keeps the recent downturn from turning into something more serious.
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Chart 2
CANADIAN STOCKS ALSO BOUNCE ... Canadian stocks have suffered from the plunge in commodity prices. Some signs of stability in copper and oil prices may finally be easing some downside pressure. It too may be coming at a good time. The weekly bars in Chart 3 show the Toronto Composite Index ($TSX) rebounding from potential chart support along its 2013 highs. The 14-week RSI line (top of chart) is also in an oversold condition. Canada's stock market lost -19% over the last year and has stopped just shy of an official bear market loss of -20%. The TSX has also lost 62% of its gains between 2011 and 2014 which is a retracement level where markets usually try to make a stand. A lot may depend on whether or not commodity prices can stabilize.
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Chart 3
S&P 500 STAYS IN SHORT-TERM TRADING RANGE... The daily bars in Chart 4 show the S&P 500 still trading above last October's low at 1820. That keeps the summer price drop within correction territory. The SPX is up more than 40 points today (2.2%) which keeps it in the middle of a short-term trading range that started with the late August climactic bottom. Chart 5 gives a closer look at that recent action. Support and resistance levels are clearly seen. Today's action is encouraging. But stocks need to do a lot more to repair the technical damage done during August. And they still have to get through the dangerous month of September. If they can do that, seasonal trends should start to turn more positive during October into the fourth quarter.
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Chart 4
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Chart 5
VIX CONTINUES TO SLIP ... The CBOE Volatility (VIX) Index is down -10% today and trading near 25. The VIX peak in late August coincided with the stock market bottom. A retreating VIX is supportive to stocks. A move back below 20 would be even more supportive to stocks. The fact that the VIX is back below last October's peak at 31 is also encouraging.
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Chart 6
TREASURY YIELD BOUNCES OFF 200-DAY AVERAGE... Treasury bond yields bounced with stocks today. Chart 7 shows the 10 Year Treasury Note bouncing off its 200-day line. That's usually a sign of renewed confidence in stocks and the economy. And because investors are selling bonds. Chart 8 shows the Barclays 20+Year T-Bond iShares (TLT) already trading below its 200-day line. Some of that defensive money leaving bonds is going back into stocks.
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Chart 7
