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Technicals Rule the Day

|Includes: iShares MSCI Indonesia ETF (EIDO), IDX

A technician friend contacted me over the weekend to share his prediction of a steep tumble for the market in the near future, with the Dow coming to rest at 8,000.  He arrived at his conclusion with the unanimous support of 1) Elliott Wave, 2) a head and shoulders pattern, 3) the Hindenburg Omen and 4) Carter Worth's choice of suits. I therefore put forth an effort to round up some support for an opposing argument.   Alas, there's not much to like about U.S. growth based on employment data, demographics or investor sentiment  that ranges between distrust and loathing. Yes, stocks  look cheap when comparing the dividend yield of the S&P to that on the 10-year bond.  However, if bonds have it right about GDP in the period, return of capital will once again trump return on capital.  As recent bond investors can attest, there's more than one way to get capital appreciation.

Checking my friend's results by examining the head and shoulders pattern in the Dow, my calculation confirmed support at 7,987.  Oh well, if you can't beat 'em...  have some dry powder and a shopping list ready to pick up some bargains.  Go for opportunities outside the U.S. on the next global equity pullback.  There you can find frontier economies such as Indonesia that are actively marketing themselves to FDI and are rapidly emerging.  Both iShares (NYSEArca: EIDO and Market Vectors (NYSEArca: IDX) have Indonesia ETFs.

Disclosure:  the author has no positions in the ETFs mentioned at the time of writing.

Disclosure: The author had no positions in the ETFs mentioned at the time of writing.