The US markets continue to struggle with direction as the broad indexes spent another day playing hot potato. There is still an unwillingness to commit from either side of the trade and equally important volume continued to decline. A quick look at the Volatility index (VIX) shows more lethargy creeping into the markets by investors. Despite the comments from Fed Chair Yellen the markets found little to cheer and little to dislike. It is clear the Fed is committed to hiking interest rates moving forward and it is just a matter of when. With the “patient” word removed from the FOMC minutes they are now free to set what timeline corresponds with their thinking moving forward. The only question: where are the buyers?
One asset class that did get my attention today was the global markets. The scatter chart below shows the various benchmarks versus the EAFE index. Japan, Germany and Hong Kong are leading the broad index while the other are not too far off the mark. The EAFE was up 0.7% on the day as the news from Yellen and Greece helped restore some confidence that the global markets are headed for more stimulus and liquidity. The news brought the buyers back to the table for global stocks. Plenty of discussion about the positive outlook going forward for Europe as the EU and the ECB plan to push stimulus to kick start the economies around the continent. This is likely to have its share of stops and starts, but the outlook is for the trend to remain on an upward trajectory.
The chart below is IEV, iShares S&P Europe 350 ETF. The move closed above the November high and has a target of $46.60 currently with the 200 DMA as the next possible resistance point. If you back into a weekly chart of the ETF you see the clarity of a double bottom reversal and technically the upside is back in play for now. The pattern produces a target of $50 our roughly 10% on the upside. As we know all too well, this is just the belief based on the technical indicators… the reality is what takes place moving forward. We will set our stops in place and take it one day at a time.
The other chart of interest today was the Emerging Markets (EEM). The downtrend has been present since the high was hit in September. The drop from high to low was 18.6%, but the bounce off the lows in December has established a minor trend reversal with resistance at the $40.65 mark. We are attempting to clear that level currently and a follow through would be a positive for the asset class. The break of the downtrend off the November high is a start and positive for the short term views. The risk to this sector is obvious, but a follow through on the break higher would worth the risk/reward short term. If the longer term picture gains clarity going forward it would only add to the upside opportunity. The countries making up this sector are worth scanning for leadership as well going forward. Russia, India, Hong Kong and South Africa all came up on the scans we ran today.
The global markets are finding buyers and money flow has picked up over the last two months on higher expectations from the ECB and EU stimulus. One day at a time is the only way to take this with stops in place to manage the outlying risk of the assets.