Hitting the Slopes: What's Up(ish) in Global Markets

Some markets have begun to show upward price trends in terms of moving averages. We took a look at all of the country ETFs to see which, if any, showed an upward slope to the 50-day moving average.

The fund price charts show the 20-day, 50-day and 200-day moving average price, plus the volume of trade with its 20-day average, and the ratio of the price performance to the S&P 500 index.

Fundamentals are important and should not be ignored, but it is also helpful to enter positions when prices have stopped falling and have begun rising in some measurable way. One possible way to judge whether a stock is rising is to look at the slope of its moving averages.

You should own securities for fundamental reasons (WHY you want to own them), but you should enter or own those securities during up-trending periods (WHEN you want to own them).

Buying a security without fundamental quantitative and qualitative reasons as to WHY is not a good idea, but buying a fundamentally attractive company in a down-trending period is not as likely to be as rewarding as buying it WHEN it is in an up-trend.

Each investor must decide what time-frame is useful for determining trend and what indicator of UP, DOWN or SIDEWAYS price movement they will use. For this exercise, we examine the 50-day moving average as an indication of short-term price direction.

These are not specific buy or sell recommendations. They are illustrations of the use of the slope of price patterns to help decide when to enter a position. You need to decide for yourself which securities you want to own and why, and then choose your own time-frame and price direction indicator.

To make it really simple, you can initially forget all the details of charts and just focus on the pure gross visual effect. Use a chart for the period you think is important; squint your eyes to blur the fine detail, and then ask yourself this single question: “Is the blurry image presenting an upward, downward or sideways path?” That could be a good way to triage your opportunities for closer examination.

US and Developed Country Markets:

The US and other major developed country markets aren’t showing an upward sloping 50-day average yet. In each case, the average (the blue dashed line) slopes downward.

Consider US (SPY), EAFE countries (EFA) and Japan (EWJ).

click images to enlarge

Middle East Countires:

The T. Rowe Price fund (TRAMX) that invests principally in Gulf Cooperation Council countries is a good example of a security with a very strongly negative slope moving average. Those countries have been hurt by low oil prices and the collapse of major development projects based on higher oil prices.

Flat-ish and Near Flat-ish Price Patterns:

Several countries are showing signs of change from a downward trend to a flattening trend. Some of them have very strong recent performance with the 20-day average and the current price well above the 50-day average. The boundary between flat-ish and up-ish or down-ish is fuzzy and subject to personal interpretation, but the concept is simple.

Hong Kong (EWH), Malaysia (EWM), Taiwan (EWT), South Korea (EWY), South Africa (EZA), China (FXI), and Thailand (THD) all have 50-day moving averages that are flat-ish, but not really yet rising. That said Taiwan and South Korea have solidly punched up lately, passing recent prior peaks.

Up-ish Charts:

Chile (ECH), Brazil (EWZ), Israel (ISL) and Indonesia (IF) each have 50-day moving averages that are ascending.

Comments

[Alan Young:]

Nice article, and generally a sensible approach. One quibble, though: neither ISL nor IF is actually trending up now, though they are worth watching.
Investment in Indonesia is now also possible through an index ETF, ticker IDX.

Apr 04 02:54 PM

[Brian Dightman:]

Hi Richard. Thank you for the reveiw and comments, especially the why and when to own.

In terms of stock investments, I have a bias internationally right now. The developed countries that I like most include Australia (EWA) and Canada (EWC). I like their natural resources, Australias proximity to Asia, and their currencies relative to the dollar once the flight safety in the U.S. $ has run its course.

The slope on the 50 for EWA has just turned up, supported by a lot of volume buying in the rally that kicked off in early March.

EWC is trying to make a turn.

Sweden, (EWD) has also shown up on my radar.

Most of the European Countries and Japan have flat to declining 50MAs.

If an investor does not want to own the individual countries, they can check out FGD, which just happens to be a global dividend ETF that has heavy weights in my favored countries and largely avoids countries that some investors might expect to lag in the recovery. I posted in the Instablog section of SA for those interested in learning more. It is thinly traded so I offer some tips on how to enter a position.

On the Emerging Market front, I was leaning torward a regional ETF like the new iShares AAXJ, I liked the country weights, but I opted for EEM. This is an asset class where I think you can still approach from a broad level and then overwieght with inidivdual countries or regions.

I have a tool that can ranks securities based on closing prices in the short term relative to closing prices over a meduim term. This results in one of 5 trends (3 up, 2 down). Here are the current results for the 42 regional ETFs I follow.

13 - In Super Uptrend (including EEM)
13 - In Major Uptrend
16 - In Minor Uptrend

Note: ZERO Down Trends

I find similar results when looking at the 22 individual emering market countries I follow.

I have noted in market action since November, that many different individual emerging market countries have lead the short rallies. It just so happens that EEM holds a nice weight for many of those countries: China, Russia, Brazil, South Korea, South Africa, Taiwan (All in Super Uptrends) with India and Mexico (2 more top holdings) in Major Uptrends.

As this market matures, I expect to suppliment my EEM position with regional/country exposure, but EEM seems to be participating nicely at this stage of the recovery and offers additional diversification that can be very helpful in this part of the market.

Disclosure: Long FGD, Long EEM

Apr 11 01:15 PM