From the desk of Tom Bruni @BruniCharting
Thanks to everyone who participated in this week’s Mystery Chart.
Most of you said that you were buyers of this big base because we like to buy smiley faces, not sell them.
Unfortunately for you all I pulled the flip-flop on this week’s chart and inverted it, so let’s see what you were actually selling.
The German DAX on a 1-hour timeframe was what we were looking at. Instead of a major bottoming pattern, we have a major topping pattern, showing prices making 4.5-month lows.
Click on the chart to enlarge view.
This has a lot to do with the index composition of many European countries. Low Yields and narrow Yield Curves are putting pressure on their Financial sectors…which happens to be a large weighting in the indices.
Here are Emerging Markets vs Developed Markets Ex-North America making 7-year highs.
How about Emerging Markets relative to European Markets? Looks like an exaggerated version of the chart above because European Markets have been the weakest part of the Developed Market basket for quite some time.
Another reason for this also comes down to index construction. The Asian Pacific countries within the EAFE Index have a much larger weighting towards Tech and less Financial exposure.
Even BRICs are outperforming Europe handsomely (h/t our intern @GrantHawkridge for the charts).
At the end of the day, it comes back to a Technology vs Financials story. Just like Growth vs Value.
Owning things with more Tech & Consumer exposure and fewer Financials exposure continues to work, regardless of where in the world and at what level (index, sector, individual stock)…the story remains the same.
As usual, things need not be that complicated. Sometimes it’s as simple as knowing what you own and what you don’t.
As always, thanks for reading and please let us know if you have any questions!If you enjoyed this post and want access to our premium research, start your 30-day risk-free trial or sign up for our “Free Chart of the Week” to receive more free research like this.