Where Do You Invest if the Trend Favoring the US Against the World Reverses?

• The US versus the Rest of the World
• Europe
• Asia

The US versus the Rest of the World

Chart 1 shows that the up trend favoring the S&P Composite against the Vanguard All-World Ex-US ETF (the VEU) is intact. That's because the latest plot is above both trendlines and its 12-month MA. Some sign of potential vulnerability does come from the rolling-over action of the KST in the lower window, but, until the ratio begins to break trend, I am assuming that the bull market favoring the S&P is intact.

That said, it is a well-known fact that the S&P is becoming progressively dominated by a select number of tech giants. Consequently, it makes sense to look at a broader measure of the market, such as the NYSE Composite, to see how that has been performing relative to the VEU. In that respect, Chart 2 shows a completely different picture, as the ratio is in a clear-cut bear market. It is below its 12-month MA, has completed an upward-sloping head-and-shoulders and is experiencing a negative long-term KST. Incidentally, the Unweighted S&P ETF, the RSP, reflects similar action.

The moral of the story is that continuing to place most of your bets on US tech stocks is probably okay for now. However, NYSE relative weakness argues in favor of some global diversification. Consequently, I'd like to focus on some individual country ETFs that have already broken out or are showing superior relative strength and look like they are about to break in a favorable direction. One promising area I won't be covering is China, since its breakout was the subject of an early July article.

Europe

Chart 3 features the iShares Europe ETF (the IEV). As with all subsequent charts, this one contains the price and absolute KST in the upper two windows and the relative line and relative KST in the lower two. As you can see, the RS action against the MSCI World ETF (ACWI) remains in a downtrend, along with the two KSTs. Although the price is above its 65-week EMA, there is little to recommend Europe as a whole. That said, there are some bright spots that are in a position to lead  the continent higher.

Chart 4 for instance, demonstrates that the iShares Germany (EWG) has just begun to break to the upside and this break is being accompanied by a rising KST. The most impressive development in the chart has been a breakout by the RS line and a relative KST buy signal.

Germany's next-door neighbor, the Netherlands (EWN), has experienced an even more impressive relative breakout. This seems likely to result in a less anemic break of that green resistance trendline to decisive all-time highs.

Most impressive of all is the Global X Nordic region ETF (the GXF). It's price has already moved to new high territory. In addition, the RS line (against the Dow Jones World Index) has ruptured a five-year down trendline. Both KSTs are positive.

Chart 6 and 7 indicate that two Nordic countries, namely Denmark (EDEN) and Sweden (EWD) have also joined the bullish camp.

Asia

The Asia Ex Japan iShares ETF (the AAXJ), represents a diversified list of Asian stocks. This series is very close to an upside breakout on both an absolute and relative basis. Both KSTs are in a rising mode, so it seems likely that a break will materialize fairly soon.

China has already experienced such an event, and Chart 9 tells us that Taiwan (EWT) has followed suit with a recent achievement of a new all-time high.

This performance could well happen for the iShares S Korea (EWY), which is poised at two resistance trendlines. Two rising KSTs support this possibility.

Finally, Chart 11 displays the SPDR S&P Emerging Asia Pacific ETF (the GMF). This fund has a 50% weighting allocated to China and 15% to Taiwan, but is otherwise well-diversified with non-Japanese equities. It also looks promising, as both the price and RS have completed large bases. Two rising long-term KSTs argue for further growth once recent gains have been digested.

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 Groupof Walnut Creek or its affiliates.