Overseas stocks are reacting well to China's newly released reform plan as the Shanghai Composite was up 2.9% and the Hang Seng is also up 2.7%. Stocks in Europe are also higher but not nearly as strong, though the MSCI World Index reached its highest level since early 2008.
The US futures are a bit higher in early trading as they try to add to last week's gains. In the weekend review of the technical outlook, I pointed out that the weekly analysis showed no signs yet of a top but there were some troubling divergences in the daily studies.
The close Friday may hold the key as a weak close could set the stage for the most meaningful correction since the 6.8% drop in the Spyder Trust (SPY) from May 22 to June 25. Such a loss would keep the SPY up over 20% for the year and decrease the too-high bullish sentiment. It could also set the stage for a nice year-end rally.
The three global ETFs featured today have not done nearly as well as the Vanguard MSCI Emerging Markets ETF (VWO), which is down 4.3% and the iShares S&P Latin America 40 Index (ILF), which is down 9.4%. The Vanguard FTSE Pacific ETF (VPL), which has a 55.1% allocation in Japan has done much better, up 18.8%.
I would not be surprised to see these ETFs hold up better if the US stock market does correct and they are three of my favorite global picks.
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Chart Analysis: The Vanguard MSCI Emerging Markets ETF (VWO) has a low expense ratio of 0.18% with 20% invested in Latin America, 19.8% in emerging Europe, and Africa/Middle East. They also have 44.3% in emerging Asian markets with 13.7% in developed Asian markets (not Japan). It holds 922 stocks and yields 3.21%.
- VWO dropped last week below the quarterly pivot at $40.49 before closing at $41.61 and above the 20-week EMA.
- The recent high is at $43.16 with the downtrend (line a) at $43.75.
- There is additional resistance at $44.81, which was the May high.
- The relative performance has dropped back to the recent lows, line c, and is back below its WMA.
- The daily RS line has turned up sharply but is still below its WMA.
- The weekly OBV turned up last week (see circle) and shows a potentially bullish zig-zag formation.
- The OBV broke the nine-month downtrend and moved above its WMA in early October.
- The OBV formed a higher high in October but the daily OBV (not shown) is still negative.
- There is first support now at $39-$39.75 with the quarterly S1 support at $37.58.
- VWO had a low of $18.50 in November of 2008 and the major 61.8% support is at $34.86.
The Vanguard FTSE Pacific (VPL) has an expense ratio of 0.12% with 812 stocks. In addition to Japan, it has 20.5% in Australia, 11.3% in Korea, 8.8% in Hong Kong, and 3.9% in Singapore. It has a yield of 2.77%.
- The weekly chart shows a long-term trading channel, lines e and f.
- VPL did pull back towards its 20-day EMA at $60.04 last week.
- A close above $63.14 would be an upside breakout with the weekly starc + band at $65.31.
- The 127.2% Fibonacci retracement target is at $65.47 with the upper trend line resistance at $66.57.
- The relative performance is trying to bottom out as it has turned up from support at line h.
- A move above the long-term downtrend, line g, and the recent high would indicate it was starting to outperform the S&P 500.
- The weekly OBV has turned up from its long-term uptrend, line i, after testing its WMA.
- The daily RS and OBV lines are just above their declining WMAs.
- VPL gapped higher Friday with minor support at $61.60 and the recent low was at $60.46.
- The quarterly pivot is at $59.61 with the October low at $59.36.
The iShares Latin America 40 (ILF) has an expense ratio of 0.50% and a yield of 2.77%. It has 57% in Brazil, 25% in Mexico, 10.6% in Peru, and 3.4% in Columbia.
- The weekly chart appears to show a double bottom in the $34.38 to $34.73 area last summer.
- There is initial support now at the quarterly pivot of $37.90 and then at $37.06 which is the minor 61.8% retracement support.
- The major 61.8% Fibonacci retracement support from the 2008 low of $19.82 is at $33.32.
- The relative performance is trying to bottom out, line c, but needs to move above the October highs to confirm.
- The RS line has a long-term resistance at line b.
- The weekly OBV moved above its WMA in early September with the close at $36.78.
- The OBV turned up from its WMA last week.
- The daily RS and OBV are still below their WMAs.
What It Means: In Where in the World to Invest?, I provided some charts of the global economy, as well as my view that in 2014 one should have some of their portfolio invested in the developed and emerging overseas markets.
These three are at the top of my list but only Vanguard FTSE Pacific (VPL) looks attractive at current levels. I would be looking to buy the Vanguard MSCI Emerging Markets ETF (VWO) and iShares Latin America (ILF) at lower levels or if stronger buy signals are generated.
How to Profit: For the Vanguard MSCI Emerging Markets ETF (VWO), go 50% long at $40.44 and 50% at $39.86, with a stop at $37.64 (risk of approx. 6.2%).
For the Vanguard FTSE Pacific (VPL), go 50% long at $62.16 and 50% at $61.35, with a stop at $58.94 (risk of approx. 4.5%).
For the iShares Latin America (ILF), go 50% long at $37.93 and 50% at $37.40, with a stop at $36.43 (risk of approx. 3.3%).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.