CHINA BOUNCE BOOSTS ASIAN ETFS -- ENERGY STOCKS SHOW NEW LEADERSHIP AS CRUDE OIL CLEARS 50-DAY AVERAGE -- OIL STABILITY ALSO BOOSTS EMERGING MARKETS IN MEXICO AND RUSSIA -- TESLA AND FORD LEAD AUTOS -- VIX NEARS TEST OF 20 SUPPORT
CHINESE STOCKS REBOUND ... Emerging markets are getting some relief from a rebound in China. Hong Kong stocks are up 511 points (2.3%) while Shanghai gained 147 points (4.9%). Chinese ETFs are also bouncing off important support levels while in a deeply oversold condition. Chart 1 shows HongKong iShares (EWH) bouncing off potential chart support along its 2007 high and a rising trendline drawn under its 2009-2011 lows. That's a logical spot for it to find a bottom. The 14-week RSI line (top of chart) recently dropped into oversold territory (below 30) for the first time since 2008. The weekly bars in Chart 2 show China iShares (FXI) bouncing off a support line drawn under lows ranging back to 2008. Its 14-week RSI is also deeply oversold. Both of their moving average trends remain bearish (10-week below their 40-week). Any sign of Chinese stability, however, is good for the rest of the world, and Asia in particular. South Korea and Taiwan ETFs are also having a strong day with gains of 1.8% and 3.7% respectively. Chinese ETFs based on mainland stocks are up nearly 6% on the day. Other emerging markets are getting a boost from oil prices.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
CRUDE OIL CLEARS 50-DAY LINE WHILE ENERGY STOCKS LEAD... Foreign markets that depend on the direction of commodity prices, and oil in particular, have been hurt by weak prices over the last year. Some of those commodities (copper and oil), however, have bounced off long term chart support along their 2008 lows and are in a deeply oversold condition. [See Market Messages from August 27 and September 9]. Copper and energy stocks have also been showing relative of strength of late, and again today. A drawdown in crude inventory levels is pushing WTIC crude up $2.40 (5.3%) to $47.00. Chart 3 shows today's gain pushing WTIC above its 50-day average (blue line) for the first time since late June. Energy stocks are leading U.S. stocks higher. Chart 4 shows Market Vectors Oil Services ETF (OIH) climbing more than 4% today, and on the verge of clearing its 50-day line for the first time in three months. Its relative strength line (top of chart) is also climbing. That's a sign of strength for energy stocks and energy prices. It's also good for global stocks that export energy like Canada, Mexico, and Russia.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
RUSSIA AND MEXICAN ETFS BOUNCE ON RISING OIL ... Russia's economy is heavily dependent on energy exports. For the first time since the spring, it's starting to benefit from rising oil. The daily bars in Chart 5 show the Market Vectors Russia ETF (RSX) climbing nearly 3% today and moving back above its 50-day average. The RSX recently bounced off chart support along its January low. Mexico is another energy exporter that's starting to do better. The daily bars in Chart 6 show Mexico iShares (EWW) gapping nearly 3% higher today and reaching its 50-day line as well. The weekly bars in Chart 7 show Mexico iShares starting to bounce from important chart support along its 2011 bottom. Its 14-week RSI line (top of chart) is in oversold territory near 30 and showing positive divergence from the price drop. That makes this the logical spot for Mexican shares to start rebounding. The dashed line in Chart 7 shows the correlation between oil and Mexican stocks. Mexican and Russian stocks are still in downtrends. A bottom in crude oil, however, could start to change that. That would be good for emerging markets -- as would a stronger Chinese market. Emerging Markets iShares (EEM) are up 2.5% today and trading at the highest level in a month. Rising oil is helping boost developed markets as well. Canadian stocks are up 2% today.
(click to view a live version of this chart)
Chart 5
(click to view a live version of this chart)
Chart 6
(click to view a live version of this chart)
Chart 7
TESLA AND FORD LEAD AUTOS HIGHER... Autos are beginning to exert leadership within the cyclical sector. Chart 8 shows Tesla Motors (TSLA) climbing above its 50-day average after recently bouncing off its 200-day line. Its relative strength ratio (top of chart) is climbing as well. Chart 9 shows Ford Motor (F) rising above its 50-day line in decisive fashion. Its relative strength line (top of chart) has jumped to a four-month high. Auto leadership is a positive sign.
(click to view a live version of this chart)
Chart 8
(click to view a live version of this chart)
Chart 9
VIX CONTINUES TO RETREAT... Chart 10 shows the CBOE Volatility (VIX) Index continuing to retreat. A retreating VIX is supportive to stocks. Two key levels to watch, however, are the July peak at 20 and the "gap" (circle) formed during August as the VIX surged (and stocks tumbled). Previous resistance levels often become new support levels. A move below those levels would be good for stocks. A bounce off of them wouldn't be. All eyes are on what the Fed does tomorrow. I don't think it will make much of a difference over the long term what it does. But a Thursday rate hike could cause some short term volatility. We'll be watching along with everyone else.
