Some Country ETF's To Watch If The Rest Of The World Starts To Out Perform The US
- The current status of the US versus the rest of the world
- Europe
- Asia
- Latin America
The current status of the US versus the rest of the world
Earlier in the week I pointed out that the trend of superior performance by the US against the "rest of the world" was showing signs of tiredness. However, since no major relative sell signals for the US had yet been given it was premature to conclude that this 7-year trend favoring the US had actually reversed. Chart 1, offered a way in which we could follow these events. Specifically, I was looking for a break in the ratio between the S&P 500 ($SPX) and the Dow Jones Rest of the World Index ($DJW) below its 200-day MA and the 2012-17 (red) up trendline. Such action, would also result in the completion of a 6-year top in the Special K in the middle panel. Both series are getting pretty close but are not quite there yet. Remember, you can follow this chart live just by clicking on it.

Chart 1
In this article I will be focusing on individual country ETF’s that have either already broken out positively on both an absolute and relative basis, or that may look like they might be about to in the near future. In this respect, let’s consider Europe, Asia and Latin America in turn. Note that all these charts feature dollar based ETF’s since, US equity relative performance is closely tied to the dollar’s performance. That means that if the US market is set to underperform, it will likely happen under the context of a declining dollar, in which case hedged country ETF’s would be expected to underperform their dollar denominated counterparts.
Europe
The iShares Eurozone ETF, the EZU, is shown in Chart 2. It features what I call the “Nirvana” template because it includes the key factors to consider from a long-term point of view. These are the price, 65-week EMA and long-term smoothed momentum(KST) in the top two panels. The lower windows contain the same information, but for relative action. In this case the FT World Index ($FAW) serves as our benchmark. Other charts use the MSCI World ETF (ACWI). Technical analysis never deals in certainties, only probabilities. That means we need to look for purchases where the position of the longer-term indicators offers a favorable probability of success. Those characteristics seem to develop when both the absolute and relative KSTs reverse from a below zero reading, and this is confirmed by the price breaking a down trendline of crossing above its 65-week EMA.
The EZU meets these requirements from an absolute price aspect, but is very close from a relative one as it’s right at a key 2014-17 down trendline.

Chart 2
Drilling down we see that Germany (EWG), in Chart 3, has experienced an absolute and relative breakout.

Chart 3
Russia (RSX), Norway (NORW) and Poland (EPOL) in Charts 4, 5 and 6 respectively, also look positive, though the Polish RS line has not quite crossed its relative 65-week. The strong trendline violation combined with a clearly bullish long-term relative KST argue that it soon will.

Chart 4

Chart 5

Chart 6
Asia
Chart 7 features the Vanguard FTSE Pacific Asia (VPL). All the windows offer positive indicators except the third one featuring relative action. Here we see a failed upside breakout of the 2013-17 down trendline and 65-week EMA. It would not take much to turn it positive, and that may well happen because of the positive relative momentum. However, for the RS picture to revert to a high probability positive mode, a break above the green dashed line would is desirable.

Chart 7
One country that would presumably benefit from a stronger overall Asian performance would be Thailand (THD), which is very close to a major upside break on both an absolute and relative basis (Chart 8). Both KSTs are positive, so this ETF is very much worth stalking for a possible purchase.

Chart 8
Australia (EWA), which is very much influenced by commodity price swings, has already broken to the upside and is being supported by two bullish KSTs (Chart 9).

Chart 9
Canada (EWC), which is not exactly an Asian ETF (!), has very similar bullish technical characteristics to Australia and is featured in Chart 10.

Chart 10
Latin America
Chart 11 features the Latin 40 (ILF). This ETF experienced a nice reverse head and shoulders breakout in mid-2016, a pull back, and now is pulling away from the breakout point. The RS KST is also positive, which suggests that Latin America will continue to outperform. What’s really needed though, is the completion of the potential 2013-17 reverse head and shoulders with Friday close above the $31 area. A rising absolute KST argues that this will happen.

Chart 11
The Latin leader at this point is Argentina (ARGT) (Chart 12), which recently touched a post 2011 high, along with its RS line. It seems that recent government reforms are being much appreciated by investors.

Chart 12
Chile (ECH) (Chart 13), also looks as if it’s ready for a secondary breakout. The first came last summer with a move above the solid green line. Now the price is trading right at the dashed green resistance trendline. The relative line is close to a breakout, but still has some work to do.

Chart 13
One area to avoid, for the moment, is Mexico (EWW), where the price, RS line and both KSTs have fallen to new bear market lows. The downside break for the price is not yet decisive, which means that a rally above the green down trendline would invalidate it and signal a strong rally. However, with the prime minister’s current approval rating reportedly at 12%, I wouldn’t count on it except on contrarian grounds!!

Chart 14
Finally, it’s worth noting that most of the ETF’s that are or looking promising have one common characteristic, they are heavily influenced by commodity price swings.
Good luck and good charting,
Martin J. Pring
The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.