The market will try its utmost to disguise its true intentions and keep investors/traders attention away from what is happening beneath the scenes. The Euro Debt Crisis (part II) is proving to be yet another diversionary tactic by Mr. Market. While everyone has been caught in the headlights of the "end is coming" commentary on CNBC, Bloomberg and every popular blog site, not to mention the press of popular opinion, areas of the market that are beneath the radar screens of most are taking the "crisis" in stride. In many instances you wouldn't even think that there is a "crisis" in Europe or that the Chinese were trying to slow things down. And Korea ... well so what? It is almost as if the dramas in Europe have been factored into the prices of markets ever since the Greeks took to the street. After all the problems of Ireland and perhaps Portugal, Spain and Italy (why not include France, Belgium, Hungary, Great Britain just for good measure) have been well documented for the last eight months at least, certainly since the Greek crisis unfolded.
The graph below is that of the APEX Small Cap Index (essentially 200 small cap stocks from Hong Kong, Singapore, Korea, Taiwan, China, Malaysia, Thailand and the Philippines). It is not displaying any behavior that is out of the ordinary or what is over and above what we could expect in a normal correction. In fact over the last 10 days it has tracked sideways while the euro has been punished with a big stick. Usually, small cap equities buckle at the first sign of trouble, especially those located in regions that are subject to hot flows of capital.
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If you are not convinced with the chart above, then try the one below. It is the small cap index of the Russian Stock Market. Even though Europe is on its back door "steppe" it is trading at a multi-month high. What crisis!
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While everyone is obsessed with studying the Dow or S&P 500 for clues as to which way they likely will move, or attempt to discover the "tone" of the market, I prefer to look at what small cap indices are doing at the four corners of the globe. I know no one is going to take me seriously when I say the Johannesburg and Russian small cap indices (among others) tell which the way the Dow is heading. But perhaps that's why it works. Think about it. Remember, everything in this world is connected.
