S&P Performance Relative to the World Reaches a Crucial Juncture
For many years, the S&P Composite (SPY) has outperformed the MSCI World Stock ETF (ACWI). The benefit of the doubt continues to move in favor of the US, but this relationship has reached a crucial juncture point and needs to bounce; otherwise, some serious technical damage will transpire. For instance, Chart 1 shows that the ratio has dropped below the 2018-2020 up trendline. It's not yet a decisive penetration, though, as the price remains above its 200-day MA and the dashed horizontal trendline is even slightly lower. The current technical condition is also crucial because a drop from current levels would confirm the negative divergence between the price and the short-term KST, which has been flagged by the two dashed red arrows. It's also evident that the long-term KST has started to ever-so-slightly roll over to the downside. This momentum indicator is still bullish because it is above its 26-week EMA, but it would clearly not take much in the form of downside action to result in a primary trend momentum sell signal.
Chart 2 compares the ratio to its Special K, which you can read about here. In this instance, the SPY is not being compared to the ACWI, but the Dow Jones World Index ($DJW). The reason lies in the fact that this is a longer-term indicator and the $DJW has a more extensive history on the StockCharts database. When it has been possible to construct trendlines for the indicator, which have also been confirmed by the price, this has resulted in some useful trend reversal signals. The early 2017 negative signal only succeeded in halting the advance temporarily, thereby underscoring the power of the post-2009 linear secular uptrend. That's why we need to be cautious in coming to a bearish conclusion, unless the evidence is overwhelming. Two pieces of negative evidence provided by the Special K come from the downside penetration of the 2018-2020 up trendline and negative red signal line crossover. The ratio may be close, but it has not yet decisively confirmed this break with one of its own.
One of the things dragging down the ratio has been the weak dollar, as both series often move in the same direction. This relationship is featured in Chart 3, where the shaded areas flag periods when the Dollar Index is above its 65-week EMA. During the vast majority of the time when this condition holds, the SPY outperforms the rest of the world. There was one notable exception, as flagged in pink, when the ratio should have rallied but chose not to instead. Currently the Dollar Index is well below its EMA, suggesting a bear market and a potential problem for US relative performance.
Right now, as Chart 4 demonstrates, this relationship is short-term oversold. The last two occasions when the RSI dropped to such an overstretched reading, the ratio bounced, so perhaps this current oversold condition will be followed by some near-term strength, thereby avoiding a major breakdown.
Some Positive International ETFs
If the relationship between the S&P and the World Indexes does crack, logic would suggest that some countries and regions may already have already begun a period of outperforming the Word Index. In a very simplistic and broad sense, the world ex-US can be sub-divided into two major candidates, Europe and Asia. Chart 5 features the European Monetary Union ETF, the EZU. As with all the remaining charts in this article, it features the price and its absolute long-term KST along with the relative line and the RS KST. Both the price and relative line for the EZU remain below resistance trendlines. Of the two, price looks a little stronger, because it is above its 65-week EMA and the absolute KST has begun to turn up. However, there is not sufficient evidence to indicate that Europe as a whole is ready to take over leadership from the US.
Chart 6 shows that the Nordic Europe may be. That's because all four series for the Global X FTSE Nordic ETF (GXF) are in a bullish mode.
Asia, in aggregate, appears to be stronger than Europe. It's represented by the iShares Asia ex Japan ETF (AAXJ). This ETF has just broken out from a consolidation pattern and is being supported by a freshly minted long-term KST buy signal. The RS KST is also bullish and the RS line itself is edging through its 2017-2020 down trendline.
Several Asian ETFs from China and Taiwan are already bullish but are somewhat overextended. However, the iShares South Korea ETF(EWY) is not and has just begun to break out on an absolute and relative basis.
Of course, the relative strength of the US to the world could be a moot point in the event that the global correction extends. After all, Chart 9 shows that the NYSE has just broken its post-March secondary up trendline. Moreover, the 10-day MA of NYSE stocks experiencing a positive silver cross (20-day EMA above 50-day EMA) remains quite high and is in a bearish trend. I am waiting for an upside reversal, as previous instances in the last few years have provided some useful signals. Remember, you can click on this chart in order to update it. If find this indicator to be helpful, then save it to a chart list.
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.
