Phil Pearlman and I had a nice little chat after the close on Friday. This week we focused more on longer-term weekly price charts and internals. Check it out:
Tags: $SPY $FEZ $FXI $ILF $TLT $ZB_F $TNX $SMH $SOX $EEM
Expert technical analysis of financial markets by JC Parets
by JC
Phil Pearlman and I had a nice little chat after the close on Friday. This week we focused more on longer-term weekly price charts and internals. Check it out:
Tags: $SPY $FEZ $FXI $ILF $TLT $ZB_F $TNX $SMH $SOX $EEM
by JC
On Tuesday I posted a mystery chart and asked readers and followers to decide whether it should be bought or sold based strictly on price. Without knowing what it was, the majority of the responses coming in were to buy it, or buy it with a stop below previous highs.
This mysterious chart is actually a pair: SPDR Euro Stoxx 50 as the numerator and FTSE China 25 Index as the denominator. In other words, Long $FEZ / Short $FXI. This chart shows the relative performance of Europe compared to China over the past 7 years.
This China fund does not represent the Shanghai Composite or any other Chinese average. The $FXI consists of 25 of the largest and most liquid companies that are available to international investors. All of the securities trade on the Hong Kong exchange. So it is not representative of all of China as a country, but just a basket of these specific companies: Bank of China, China Mobile, CNOOC, etc.
Same thing with the European Fund. $FEZ consists of just 50 humongous European companies. So France’s Total and Sanofi, Germany’s Siemens and Bayer, and definitely not Bank of Greece. 50 “blue chips”, not the little guys.
To me, this chart is clean. And it represents an ongoing theme that we’ve been talking about for a while. Which has essentially been long of big developed nations, heavily weighted Europe, and short Emerging Markets. For example, coming into the year, Phil Pealrman published a list of charts to watch for 2013. My chart was the Long $EFA / Short $ILF pair. This trade went long companies from developed countries outside of the US & Canada and Shorts Latin American companies against it. At the time, the price was at 1.30 and is now at 1.50 without much of a pull-back.
Another recent example of this theme has been the $FEZ / $ILF pair, which is Long the Euro Stoxx 50 explained above, and short the same Latin American 40 fund mentioned in the second example. Phil and I have been talking about this one consistently in our weekly videos. And it has also been working fabulously.
So this one is just another spin-off I suppose of that same ongoing theme. This Long Europe / Short China looks to me like a beautiful breakout after a multi-year base. As long as we’re above those breakout levels, I find it hard not to love it.
So just for fun, let’s think about what this might mean for these two areas of the world. Is it more that Europe is breaking out and is going to be a huge winner going forward? Or is China going to roll over and get destroyed? As far as we’re concerned, price and risk management is the only thing that matters for this particular chart. But there may be some spin-off trades we might make in the future based on the information we gather from this pair. I believe that the behavior of each of the components in the ratio are going to be fascinating to watch. So stay tuned…
by JC
Volatility is definitely picking up and the daily ranges have been getting bigger. So we’re trying to stay as market neutral as we can for now until the market takes us to levels where we can lean on the longer or shorter side. Here’s what we’re looking at today:
Tags: $VNQ $XLV $XLP $XBI $ILF $EWW $TNX $EPU $GXG $ECH $EWZ $XLF $SMH $INTC $TLT $FEZ
by JC
My buddy Joe Fahmy was nice enough to have me over to his office this evening to chat about the markets. Since we have the technology, we figured we should record it. Here’s how the video came out:
Make sure to follow Joe on Stocktwits & Twitter @jfahmy
Also check it his blog The Next Big Move
Tags: $FEZ $EWG $EWQ $EWD $ILF $EWW $EWZ $EPU $GXG $EPOL $DXJ $EPHE $EWM $EIDO $EEM
by JC
Bull Market
Sectors are rotating….and I still think that’s what’s necessary:
Here are some of the charts we discussed. S&P500 levels:
Look at what the Dollar index did the last 2 days. This is a 30-minute chart of US Dollar Index Futures:
This is what the Long Europe/Short Latin America pair looks like right now:
And finally the sector rotation that we keep harping on. Notice the shift in mid-April when the underperformers turned higher and the leaders rolled over. These are year-to-date numbers relative to S&Ps:
Tags: $SPY $USDJPY $TLT $FEZ $ILF $SPX $XLB $XLI $XLV $XLU
by JC
New all-time high close for the S&P500 today. So in honor of this momentous occasion, Phil and I are joined by the man, the myth, the legend himself Mr. Ryan Detrick.
We discussed Consumer Stocks, Sentiment, Treasuries, UK breakout, Coal, Latin America and Europe. Check it out:
Source:
Hanging Out With Detrick & Pearlman
Tags: $EWU $SPY $EPHE $TLT ZB_F ZN_F $TNX $ILF $FEZ $KOL
by JC
I mean, we’re just trying to have a nice little bull market over here in the U.S., minding our own business, and they gotta go underperform and diverge to ruin all the fun. Seriously though, what’s Europe’s problem?
OK just kidding. But not really.
I think I’ve been pretty vocal over the last month or so about the underperformance in Europe. I’m not going to link to posts or tweets or anything, you can go back and find them if you want. That’s not the point of this. Today I want to pull up a very simple chart of the Euro Stoxx 50 Fund to look at, not only how broken it has become, but also how vulnerable its condition was coming into this weekend.
Here is a daily bar chart of “The FEZ” as we like to call it at our shop. I remember the original breakdown like it was yesterday. It was February 4th and I had just woken up in a New Orleans hotel room after a memorable night at the Super Dome. I was extra dehydrated that morning (can’t imagine why). And European averages were getting destroyed. Germany was down 3.6%, France down 4%, Spain down 5.3%, Italy down 5.8%, the entire Euro Stoxx 50 down 4.5%. The list goes on and on. And I said to myself, “this is not bull market behavior”. And it certainly wasn’t. Healthy stocks and assets don’t get smacked in the face like that overnight (yes this all happened overnight). And by the way, Emerging markets were getting smoked that day also, but that’s another discussion for another day. Let’s stick with Europe for now:
You can see that there was an island reversal of sorts created on that Monday morning breakdown after the Super Bowl. Along with that came a bearish divergence in the Relative Strength Index. As prices made fresh highs into that “island”, if you will, momentum was already rolling over. This is shown clearly in the chart above. Go run through a some of the individual countries and you’ll find similar looking charts.
Then a few weeks ago we had that Monday Italian Election fiasco. That day, confirmed a hard breakdown below the uptrend line from last summer’s lows. Again, stocks and assets in bull markets don’t behave like that. They just don’t get crushed in one day the way these have. Italy down 10% in 6 hours? You don’t need to be a technician to know that isn’t bull market behavior.
Now since then, US Markets have continued to rally into historic territory. Investors waving their hands in the air like they just don’t care. And maybe they still don’t. We’ll see. But European markets are vulnerable. They’ve rallied back up towards that broken uptrend line and retested it this past week.
Even the Euro itself peaked on that Super Bowl weekend. Look at $EURUSD Daily bars. You think it’s a coincidence that the currency topped out at the same time that their equities did?
Europe is vulnerable. Not really an opinion, but more of a fact I think. So will the US continue to shrug it off? We haven’t seen the two of them disconnect for this long since 2009. This is a chart comparing the peaks in Europe with those of the US. Typically, Europe tops out first, and then the US gets the memo and rolls over. Well, we’re going on 6 weeks now without the US joining the correction. Will this continue? Or will the US play catch-up?
European stocks better start rallying very soon for none of this to matter technically. And by soon, I mean like right now.
You see what I did there? Didn’t have to mention Cyprus in the entire post.
Tags: $SPY $FEZ $EWP $EWI $EWG $EWQ $EURUSD $FXE
by JC
After a decade of underperformance, I guess we shouldn’t be surprised that European stocks keep struggling when compared to the United States. But I think it is worth noting that even after the monster rally in Europe during the second half of last year, the downtrend relative to the US got going again to start 2013.
With counties like Italy down over 7% year-to-date, Spain flat, Greece down, and the “quality” of Germany and France up barely 1% for the year, it’s no wonder the group is underperforming. Below is a chart of the European Top 100 Stocks vs the S&P500. The decade plus long secular downtrend in this pair seems to be continuing into the new year:
I can’t help but notice how even in the midst of all of that strength in the second half of last year, the relative strength index (RSI) never reached overbought conditions. This is more evidence that the downtrend in European stocks relative to the United States is still intact.
It looks to me like fresh lows are in store here and rallies need to be faded. The weakness in stocks is definitely coming out of Europe.
Tags: $EWG $EWQ $EWI $EWP $GREK $FEZ $SPX