Over the past few days I’ve received requests from readers about my thoughts on Russian stocks. While I don’t particularly care about the US/Russia relations when it comes to picking stocks to buy and sell, it seems to be something of interest to a lot of people. So let’s dive in. [Read more…]
One of the benefits of it being 2016 is that global markets are more interrelated than ever before. We can take price data from the other side of the world and use it to take advantage of domestic markets in the United States as well as many other countries and asset classes. To purposely ignore what is taking place in markets around the world seems irresponsible at this point.
Today we are watching what Latin American stocks are suggesting for the next direction in Crude Oil prices: [Read more…]
In this week’s members-only letter we discuss the following topics:
- What Do We Do With The U.S. Indexes Now? S&P500, DJIA, etc
- The Best Trade In Precious Metals: Gold & Silver
- About That Squeeze Higher in Chinese Stocks
- My Favorite Energy Trade Today
- What Are We Going To Do About This Messy Bond Market?
- The Best Tech Stocks: Apple, Microsoft, Google or Facebook?
- What Does The Weight-Of-The-Evidence Suggest About Risk-Appetite?
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.
As far as stocks go, it’s hard to find a worse area than Emerging Markets to have been in over the past few years. We’re talking about a group of countries whose stock markets do nothing but underperform the U.S. and most of the other developed nations. More recently, they’ve been crushed on an absolute basis over the past 6 months. Although our initial downside targets were hit in August, I would expect the overhead supply and downside pressure to continue to persist.
In Early August, we took a look at the MSCI Emerging Markets Index ETF suggesting that a downside break was imminent. Below is an updated weekly chart of Emerging Markets breaking down below the lower end of the two converging trendlines defining its consolidation over the past 6 years or so. In addition, prices broke that $37 area that had served as support since 2010. The more times that a level is tested, the higher the likelihood that it breaks. After several tests of support over the past 5 years, that level finally gave way. It was only a matter of time:
Notice how on that breakdown in August, prices were able to hold on to the 61.8% Fibonacci retracement of the entire 2008-2011 rally. Although finding support near that level was a positive, it’s what we have to worry about going forward that has me concerned. All of that former support that broke over the past few months is now overhead supply. This has been a common theme I’ve been pointing out here in the U.S. stock market. The same problem can be seen in Emerging Markets.
Here is a closer look at the breakdown in EM over the past couple of months. Look at all of that overhead supply that is now going to be a problem going forward. On any strength into that level near $37, the sellers are just sitting there waiting to sell to you. This is the, “Please just get me back to break even” crowd that is holding on to all of this supply. In my opinion, this is simply way too much supply to absorb in the near term and a sustainable rally in Emerging Markets is likely not happening any time soon. This is definitely a ‘sell strength’ market, particularly towards $37.
In this chart above I also included a 200 day simple moving average. When prices are trading below these downward sloping smoothing mechanisms, especially one as long as 200 days, we know the intermediate term trend is still down. In addition, look at momentum plotted down below. We are looking at a 14-day RSI hitting oversold conditions. This is characteristic of a downtrend and we haven’t even put any bullish divergences to suggest a sustainable rally could be coming.
I see nothing to like here and all signs are pointing to lower levels. The best way to take advantage of this, in my opinion, is to sell strength, particularly above $36 if we get up there. I’m not suggesting we’re getting a rally to those heights, but if we do, I think it’s a sell. The original shorting opportunity came a few months ago. So I think ‘sell strength’ is the dominant theme here that we want to focus on.
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Tags: $EEM $SPY $FXI $EWY $RSX $EWZ $ILF $EPI $EWW
Last week we were focused on Emerging Markets falling to fresh 10-year lows relative to the S&P500. We are now hitting levels not seen since 2004 when you compare the MSCI Emerging Markets Index ETF $EEM with the S&P500 ETF $SPY. We know it’s a disaster, not a secret. But today I want to take a look at emerging markets on their own. We’ve seen this group trading in a sideways frustrating range for almost 6 years while U.S. Equities have exploded higher to all-time highs.
Here is a weekly chart of the MSCI Emerging Markets ETF $EEM breaking down below the lower of these two converging trendlines since 2009 and now testing the key support that has held for the past 5 years. The underperformance relative to the U.S. and the rest of the world, mentioned before, was warning #1. The break of the lower of the two uptrend lines was warning #2. And now we are here at the most important support level we can come up with on this chart:
Bigger picture emerging markets look terrible. It’s hard for me to make an argument against that. So for a more tactical perspective, we turn to the shorter-term charts. Here are the daily candlesticks with a 200 day simple moving average, that we use mostly for trend recognition, and a 14-day relative strength index for momentum readings:
We have broken the uptrend line from the lows in December. Over the past few weeks, prices have now broken support from those December lows. Momentum is hitting oversold conditions which is a characteristic of a downtrend, and therefore confirming everything price is already signaling. Price target-wise, I’m looking at that 33 level which represents the 161.8% Fibonacci extension of that entire December-April rally.
So how do we execute? Well with that downward sloping 200 day moving average and prices breaking all kinds of support levels, I am definitely in a sell any and all strength mode, especially if we somehow get back up towards 38-39, although I doubt we get up there any time soon. I would only want to be short here tactically if we are below the December lows and more neutral above that level. Target-wise, I would be covering tactical shorts under 33, which is still a long way down from here.
This is a messy market, both short-term and long-term. The underperformance really stands out, especially with fresh support levels breaking down.
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Tags: $EEM $SPY $EWT $EWY $FXI $EWM $RSX $EWZ $EWW $ILF $EPI
Last week I was over at Fox Business chatting with Liz Claman about the Russian stock market. I first starting put this out there on the first day of the quarter on Yahoo Finance. Since it was April 1st, I actually got some emails wondering if it was an April Fool’s joke. But nothing to joke about here, we starting buying as we came into the quarter so Fox asked me to come on and discuss. I like energy as a group, and Russian stocks move with oil (see here). I’m looking for these upside mean reversions to happen together.
Here’s the video in full:
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Tags: $RSX $RUBL $SOCL $TCEHY $SPY $USO $CL_F $XLE $OIH $XOP $RUSL $EEM