This weekend I did my regular global macro review. This is when I go country by country analyzing the weekly and daily charts of all of the stock markets around the world. Each chart includes a momentum study (14-period RSI) and a 200 period moving average that we use to help with trend recognition. I trade indexes all over the world, simply because I can. Why wouldn’t I? [Read more…]
Going country by country all over the world is one of the best tools that we have as market participants. The value that I’ve gotten over the years from looking at the behavior of all of the countries, instead of just the U.S. is a huge factor in why I am such a top/down weight-of-the-evidence guy. There are signs of strength and weakness that we see from international markets that might not be so obvious in the S&P500, for example.
Last September, I promise you that the reason I got bullish tactically was not because of what I was seeing in the United States, but what was happening around the world. There were simply too many bullish momentum divergences and downside objective achieved internationally to ignore. Something was up, and in fact, the counter-trend rally that we got in the U.S. actually exceeded my expectations.
One of the more valuable tools that we have as market participants is Relative Strength. Where are the weaker areas of the market and where are the stronger ones? This concept can be seen among individual US Sectors. For example Financials have been laggards while Healthcare has been a leader. You can take that one step further and look at the relative strength out of Wells Fargo, while Citigroup has been one of the worst names in the Financial sector. But as you guys know, I like to take my analysis globally and look for relative strength among different types of countries and regions. India this March really stood out when compared to the other BRIC nations (see here). While Russia, Brazil and China were breaking to new lows, India was breaking out to new highs. I simply can’t call it a coincidence that India then rallied 35% from March while the others continued to struggle.
Today we’re taking a closer look at Europe. Members of Eagle Bay Solutions receive a much more detailed report of Europe every week that also includes the rest of the countries around the world on multiple timeframes with additional momentum analysis and price projections. I wanted to share with you guys just a few simple charts from Europe comparing some of the laggards to these two leaders: Belgium and Switzerland. What stands out to me is where these two countries are relative to their 200-week moving averages. From a structural perspective, all of the European nations tested or briefly broke this particular long-term smoothing mechanism. These are all 6 year charts. Notice the differences:
Here is the Euro Stoxx 50 $FEZ representing Europe as a group breaking the 200-week moving average:
Going through each of the individual country ETFs in Europe, these two in particular really stand out. It could be nothing. Or we can look back 6 months from now and say, “oh wow that was the tell”. I guess we’ll see. But either way, I think this is a good exercise regardless of the asset class or group of stocks or ETFs that we’re analyzing. I think there’s something here. Maybe they hold up better if stocks continue to struggle as they have been throughout 2014. Maybe on the next rally these are the outperformers. Maybe there are some good pair trades where these two can be the numerators while the laggards are on the short side of the pair. Execution-wise, it really just depends on your goals, time horizon and risk tolerance. But once that is defined, I think this can be a good starting point.
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Tags: $EWI $EWP $EWG $EWK $FEZ $EWL $EWD
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