Global Equities Trick or Treat?
- A few words on long-term charts
- US equities starting a period of underperformance?
- Overcoming resistance
- Chinese equities look vulnerable
- Good looking country charts
A few words on long-term charts
I like looking at short-term charts because you can sometimes pick up some interesting psychological characteristics through divergences, candlesticks and one and two bar western patterns etc. However, my real passion, how I hate that hackneyed term, is with the longer-term charts, as they provide the perspective which gives context to those shorter term moves. Even though the “monthlies” are slow to move and demand patience, longer-term charts occasionally come together to give us a common message of a forthcoming major move. The last half of 1982 was one of those periods when the chartbooks were full of stocks that were just beginning to break out from long-term 10-20-year formations. We called them bases, but they were really consolidation patterns. Bottom line, the widespread existence of those bases provided the springboard for the 18-year 1982-2000 secular bull market. I am not forecasting that that will happen now, but what I have noticed is three things.
US equities starting a period of underperformance?
First, that the trend favoring US equities against the rest-of-the world, looks like it is reversing. Second, that many international country indexes, when measured in local currencies, are either edging through or are just below, some major long-term trendlines, marking the top of some very large potential consolidation patterns. If they go through we are likely in for a mini 1982 treat. Failure to complete the patterns will mean some extensive corrective activity of some kind, hence the word “trick” in the title. That seems unlikely, because my third point is that many individual country ETF’s have already triggered some long term buy signals on both an absolute and relative (to the world) basis. In other words, we already have some upside leadership in place. Bearing that in mind, let’s look at some charts!
Chart 1 shows that the ratio between the SPY and the MSCI Europe Australia Far East ETF, the EFA, has violated the up trendline and crossed below its 200-day MA. The blue arrows indicate a series of declining peaks and troughs. Moreover, all three KSTs are in a declining mode. That chart indicates that the recent trend of superior relative strength for the World EX the US will extend.
Chart 1
Overcoming resistance
Chart 2 begins to plot out the resistance as two alternative rest-of-the-world ETF’s (VEU and EFA) are both bumping up against 9-year resistance trendlines.
Chart 2
In a similar vein, Chart 3 shows that Europe, in the form of the STOXX Europe 600 Index ($STOXX600) is also just below a 17-year resistance level. Note that five of the previous KST buy signals resulted in major rallies, so the recent one argues for an upside break.
Chart 3
Chart 4 also flags resistance for the long-suffering Japanese market($NIKK). Unlike the US Dow, 20,000 does mean something in Japan because it’s right at the green trendline. Note that the long-term KST has already triggered a buy signal, so that should help push the Index higher.
Chart 5
Lower sterling has enabled the pound based FTSE 100 Index ($FTSE) to have already experienced a breakout from a 17-year consolidation.
Chart 5
Chart 6 is a great example of watching what markets do, as opposed to forming emotional opinions based on hyped news. Even with the obvious dangers of cataclysmic military conflict, the South Korean Kospi($KOSPI) has responded with a solid upside breakout from a 10-year consolidation. Investors are generally no fools when it comes to this stuff. They obviously can see through the smoke and are placing low odds on conflict and high ones on the Korean economy improving.
Chart 6
The Taiwanese Weighted Index ($TWII), is probably our best example, as it is resting just below a 27-year resistance area. The KST is already bullish, so I am looking out for an upside breakout from this wonderful potential springboard.
Chart 7
While the global entrails look to be very positive, it’s also the job of the technician to look over his or her shoulder to see what may go wrong. In this instance you will notice that all these charts have been constructed with red up trendlines. If they are violated and the various KSTs start to turn down, the bullish case will lose its validity. This would be especially egregious were it to happen soon, as most of these momentum indicators are at a relatively low level, just above zero. Low level reversals, when confirmed by trendline breaks can be particularly devastating. Frankly I think there is enough positive evidence to go with the “treat”. Let’s leave the “trick” part of it for a later discussion.
Chinese equities look vulnerable
Chart 8 shows that the Chinese market ($SSEC) may be in need of additional re-accumulation (i.e. testing the 2016-17 lows), as both the Shanghai Composite and its relative strength line have tentatively violated important trendlines. Both KSTs are currently in a downtrend, but being close to zero, are in a position to quickly turn with a small price rally. As it stands right now though, there is little to argue for purchase.
Chart 8
Good looking country charts
The final few charts feature some dollar based country ETF’s that have already broken to the upside on an absolute relative basis. Some are a bit overextended but the early phase rally of their long-term KSTs argues for higher prices down the road. Note that most European ETF’s fall into this category as do some selected Asian countries. Ireland (EIRL) is shown here.
Chart 9
Sweden is breaking out. (EWD).
Chart 10
Greece is making a nice breakout. (GREK)
Chart 11
All Country Asia Ex Japan is starting to move. (AAXJ).
Chart 12
Latin America is also moving on up. (ILF).
Chart 13
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.
