The World Is Breaking Out: Here's What We're Buying

From the desk of Steve Strazza @Sstrazza

Thanks to everyone for the feedback on this week's Mystery Chart. We had a lot of good answers this week. Many respondents were cautious of the waning momentum but on balance, most of you were buyers. We are too.

It was a chart of the iShares MSCI Netherlands ETF $EWN which just broke out of a 13-year base to fresh all-time highs (shown below).

But it's not just the Netherlands making new record highs, the All-Country World Index $ACWI just made new all-time highs as well. There aren't many things more bullish than World Equity Indexes trading at their highest levels in history.

In this post, we'll highlight the positive breadth characteristics we're seeing within Global Equity Markets and outline trade setups in some of the strongest countries around the world- including the Netherlands, as a way to express our bullish thesis.

But first, here's why we're so bullish on International Equities in the first place. Check out these new highs for ACWI.

We like ACWI long above 81.75 with an objective just below 100, and about a 4-month timeframe into year-end.

The All-Country World Index making new highs is great, but we always want to make sure these moves in the indexes are being supported by improving breadth and participation beneath the surface.

When we last covered International Equities back in June, we noted that market internals continued to improve as many continuation patterns were resolving to the upside.

Every weekend, we take a long look at our universe of almost 60 International Diversified and Country ETFs. We monitor it for improvement or deterioration in breadth and momentum, among other things.

Here is a link to the latest International ETF Momentum Report which we send to our Institutional clients every week. Take a look as it's a great representation of where exactly the strength (and weakness) is coming from within Global Equities. Here are the summary statistics for the week ended August 21st.

As you can see, we had almost 60% of stocks make new monthly highs and over 40% make new quarterly highs. 87% of the ETFs on our list are in a bullish momentum regime.

Let's compare this to the week of February 14th now, which is the last time ACWI made an all-time weekly closing high. Here are the same summary statistics.

20% of stocks made new monthly lows back in February while the index was registering a record high. That compares with just 7% (or four ETFs) this past week.

Less than 20% of stocks made new monthly highs that week and a lousy 15% made new quarterly highs. Only 57% of stocks were in a bullish momentum regime and the average RSI reading was below 50. These are the kinds of readings we see from market internals at tops.

That's simply not what we're seeing today as new short-term highs are double or triple what they were back in February.

Let's take a look at some of those ETFs making new highs now.

We already know one of them is the Netherlands. Here's the Mystery Chart, updated with a Fibonacci extension from its Financial Crisis drawdown.

We like EWN as long as price is above those former highs at 34. We're targeting 47 over the next 3-6 months.