International Markets Suggesting Choppiness Ahead?
Let's start with the conclusion. When we look at the 52 International Markets we track in their local currency basis, we find that a great deal of them are experiencing two conditions.
- Weak momentum in the form of a bearish momentum divergence OR never reaching overbought territory (14-day RSI)
- A flat (or nearly flat) 200-day moving average
By my quick and unscientific count/estimate, 35 of these 52 indexes are experiencing weak momentum and 32 of the 52 have a flattish 200-day moving average.
Additionally, last week our momentum report saw the breadth of our International ETF Universe deteriorate slightly. The number of new highs across short/intermediate/long-term timeframes all declined and short-term new lows expanded slightly...and that's with the US Dollar collapse being a major tailwind for these vehicles.
Not the end of the world yet, but headed in the wrong direction and needs to be monitored to see if this weakness expands further.
Point being that the short-term breakouts to new highs we were seeing were a major part of the bull thesis we discussed during our Conference Call two weeks ago. Now that we're seeing many of those breakouts fail, those tailwinds have turned into headwinds.
Let's take a look at a few examples. Here's Wilshire 5000, one of the strongest markets out there experiencing both a flat 200-day moving average and bearish momentum divergence. Prices have yet to respond to either of these conditions, but they're worth monitoring.
Click on the chart to enlarge view.
Here's the Stoxx Europe 600 failing to sustain its new recovery highs.
Brazil has been strong, but momentum is diverging as prices begin to consolidate.
Here's Australia failing at resistance as momentum diverges.
And Germany falling back towards the middle of its range as momentum diverges.
South Korea approaching resistance as momentum diverges.
Even some of the strongest markets like Sweden couldn't get overbought.
And the weakest markets like the United Kingdom are already breaking down.
Spain breaking down.
Philippines breaking down.
Belgium breaking down.
and so on and so forth. You get the point.
The presence of these conditions, combined with what we're seeing in Crude/Copper/other risk assets, suggest a more choppy environment is ahead for stocks in the near-term.
What that means is we need to be more selective in what we own or short and focused on individual stocks/sectors/industry groups as opposed to the major averages.
And to reaffirm this view, here's a chart of the Nifty 50 chart closing below 11,000. This move confirmed a very short-term bearish momentum divergence and failed breakout. With prices sitting right at a flat 200-day moving average, headaches are likely all one will get from trading the averages in the near-term.
Tell us what you think. Is it time to settle in for some chop? or are these conditions nothing to worry about?
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