Is It Time for Emerging Markets to Emerge?
The US market has been recovering nicely since the April low, but it has actually been outperformed by the rest of the world this year so far. In that respect, Chart 1 shows that a major shift away from the US could well be in the cards.
It is evident that since the early 1990s there have been three distinct trends in the S&P's performance relative to the Dow Jones World Index. Each transition was signaled by a secular trendline break and a long-term KST sell signal. Another turning point characteristic has been a multi-year trading range, as flagged by the two blue rectangles. I bring this up because the post-2010 up trendline has been violated and the KST has started to cross below its MA, which suggests that the secular bull market may well be in the process of transitioning to a trading range or actual reversal.
A lot will depend on the outlook for the dollar. In that respect and using the benefit of hindsight, the green shadings in Chart 2 tell us that, when the Dollar Index is in a rising trend, the RS line for the US is usually firming up as well. The two gray shadings highlight the fact that both series occasionally move in opposite directions, which is what appeared to happen in 2023 and 2024.
Since the start of this year though, the RS line and the Index have been in tune on the downside. The Index recently broke down from its trading range, but, so far, this has been an anemic move, which could easily be reversed. Point being, if the Index experiences a more decisive break, it's likely to take the RS line with it.
Chart 3 compares the US, Emerging, European and Asia Pacific ETFs to the World Index. The recent move by the S&P below its 65-week EMA and 2021-2025 up trendline looks like a solid downside break. On the other hand, the other three series are at trendline resistance, and require a nudge to clear these lines.
Chart 4 removes the US from the picture by featuring the MSCI World Ex US ETF, the ACWX. The chart shows that if the US is excluded, the global stock market is already at a new high. Moreover, this breakout is being supported by my Global A/D Line, which has also reached a new all-time high. The implication is that if the various non-US ETFs featured in Chart 3 break out on a relative basis, they will also rally on an absolute one.
Emerging Markets
Chart 5 returns us to the MSCI Emerging Markets ETF (EEM) and its relative action to the Dow Jones World Index. The absolute price has just broken above its 4-year resistance trendline. If that break turns out to be genuine, the long-term KST, in the second window, will remain in a bullish mode. At the moment, though, it is precariously balanced. For its part, the RS line looks ready to break out at any moment, and would likely be successful given the positive KST for relative action.
Chart 6 demonstrates that there is a strong relationship between emerging markets in general and copper prices. Swings in these two entities have been very similar in the last 20 years, so the fact that the copper price has recently broken out should be a positive factor for EM ETFs. The green arrows show that long-term KST buy signals in the red metal have usually been followed by an EM rally lasting at least a year. We established earlier that the EEM could be in the process of breaking out, so the finely balanced copper position further underscores that view.
Finally, I like to see long-term breakouts, and Chart 7 certainly provides us with the potential for one. That's because the iShares Latin America ETF, the ILF, is currently resting just below a 17-year resistance trendline. The long-term KST remains below its MA, so it is not yet a positive force. However, the possibility of a mega breakout indicates this is a situation well worth stalking.
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.
