ALL COUNTRY WORLD INDEX REGAINS 200-DAY LINE -- EMERGING MARKETS LEAD GLOBAL REBOUND -- BRAZIL AND CHINESE ETFS STRENGTHEN -- ENERGY AND HEALTHCARE SPDRS CLEAR 50-DAY LINES -- OTHER SECTOR ETFS TURN BACK UP -- S&P 500 RETAKES 200-DAY LINE
MSCI ALL COUNTRY WORLD INDEX BACK OVER 200-DAY AVERAGE... Investor confidence is returning to global stocks after the short-term panic caused by last Friday's Brexit vote. Improvement is being seen in both developed and emerging markets. Chart 1 shows the MSCI All Country World Index (ACWI) climbing back above its 200-day moving average today as well as chart support along its May low. Chart 2 shows EAFE iShares (EFA) gapping higher this morning to continue the rebound that started yesterday. [EAFE stands for developed markets in Europe Australasia and the Far East]. Chart 3, however, shows a much stronger chart pattern for Emerging Markets iShares (EEM) which held above its May low and is now trading above both moving average lines. Its chart pattern looks more like a sideways trading range than a topping pattern. Brazil and Chinese stocks are among the biggest gainers in the EEM.
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Chart 1
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Chart 2
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Chart 3
BRAZIL AND CHINESE ETFS STRENGTHEN ... Chart 5 shows Brazil iShares (EWZ) moving close to a new 52-week high. Brazil is closely correlated to commodity prices. China is the biggest importer of those same commodities. Chart 6 shows the China iShares (FXI) rallying as well. [FXI includes mainland Chinese stocks traded in Hong Kong]. China has the biggest weight in the EEM (25%). Emerging market buying is a good sign for global stocks.
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Chart 4
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Chart 5
ENERGY AND HEALTHCARE CLEAR 50-DAY AVERAGES... One of the best ways to see what's really happening in the stock market is to track what its ten sectors are doing. All are in the black today and showing chart improvement. Energy is the day's strongest sector. Chart 6 shows the Energy SPDR (XLE) trading back above its 50-day average. A positive correlation has existed between energy shares (and crude oil) and the market. Chart 7 shows the Health Care Sector SPDR (XLV) rising above its 50-day average after bouncing off its 200-day line. Other sector ETFs are either bouncing off moving average lines or moving above them.
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Chart 6
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Chart 7
TECHNOLOGY AND CYCLICALS REGAIN 200-DAY LINES... A couple of ETFs have moved back above their 200-day averages. Chart 8 shows the Technology SPDR (XLK) doing that yesterday. The XLK has also regained its May low. Chart 9 shows the Consumer Discretionary SPDR (XLY) trading back over its 200-day line as well. Those are encouraging signs. So is sector "breadth". Nine of ten sectors are trading over their 200-day averages. Financials are only exception. Industrial and Material ETFs (not shown) found support at their 200-day lines.
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Chart 8
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Chart 9
S&P 500 IS BACK ABOVE 200-DAY AVERAGE... Chart 10 shows the S&P 500 trading back above its May low and its 200-day moving average. That's an encouraging sign that the breakdown on Tuesday has probably been contained. All major stocks indexes are trading back over their 200-day lines, with the exception of the Nasdaq. A move above the 50-day average would be even more encouraging. It's also reassuring to see the 50-day average still trading well above the 200-day line.
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Chart 10
VOLATILITY INDEX PLUNGES... Another positive sign is a plunge in volatility. Chart 11 shows the Volatility (VIX) Index plunging all the way to 17 which puts it below the level of last Thursday's British vote. That strongly suggests that option traders are liquidating their bearish hedges. Impressive as today's market gains are, it's important that they hold those gains through today's close and, hopefully, through the end of the week. It would also be nice to see a pickup in trading volume.
