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As we all know Global indices took a nose dive in May and the short-term bottom finally took hold May 25, roughly one month ago. Since the mild recovery the Vanguard Global Index ETF (VGK) has gained 12% and the SPDR S&P500 6.7%. Both are solid moves in under a month but overall the S&P500 is lagging emerging markets. Even with a surprise change in currency policy (and a surge in equities) China has underperformed its BRIC peers like Russia (RSX), Brazil (EWZ) and India (EPI).
The true leader of the global rebound is Latin America. There are 20 countries that comprise Latin America, most of which are not revered for their economic prowess, however, a broad based trend has emerged giving this area the leg up in recent market performance. Let’s take a look at the ETF leaders:
In the chart below we have the top 20 ETFs sorted by 1 month performance – to keep it true we do not include inverse or leveraged ETFs. 30% of the top ETF performers are Latin American ETFs providing the largest chunk of gains of any geographic location. Interesting enough another strong geo-location is South East Asia & Australia with Indonesia (EWA), Australia (EWA) and Thailand (THD) with 15% share of the top 20.
Brazil is the clear leader of leaders with two ETFs in the top 5 performers including Small-Caps (BRF) and large-caps (EWZ). (In case you cannot decide on BRF or EWZ, a new Brazil Mid-Cap ETF started trading on Tuesday with ticker BRAZ.) Next are two diversified Latin American ETFs, GML and ILF – both are heavily invested in the top economies Brazil, Mexico and Chile. Chile (ECH) and Mexico (EWW) round out the list of top performers.
Given the dependence on energy and basic materials in these economies it’s no surprise to see the Coal and Steel ETF make an appearance, although Oil remains out of the picture. If the trend continues and leaders continue to lead (which they tend to do) then we could see oil (USO) outperform over the next month closing the performance gap.
Click to Enlarge
Looking back at the S&P500 and the flash crash the major market index has tested support and resistance three separate times. Typically, the more times a key level of support or resistance is tested the weaker it becomes. I've found that three times is a key number of tests to watch - if a key level is tested three times it is exponentially more likely to break that test. Of course, this has just been an observation of mine over the past several years in my trading so we'll continue to watch and see what happens.
In the past 14 days the S&P500 has shed 7% of its value so many investors are starting to look for value in beaten down equities. Of course, others still believe this is the start of a new bear trend… In either case, here’s a list of the most overbought and oversold ETFs.
The currency markets are in turmoil this morning as Greece is bailed out. As expected the Euro is facing increased selling pressure and is currently off 1%, which places it near 10 month lows. In contrast, the US Dollar has achieved a quid pro quo and is up 1% on the news and is near 9 month highs.
Today's impact is significant on both currencies -- It looks like the US Dollar Index ETF (UUP) is breaking out based on recent price action. In testing those 9 month highs UUP has moved well above its 50 day moving average while the same moving average has now crossed and confirmed above the 200 day moving average. As of now, the up trending channel shows resistance at $24.25 on UUP, perhaps this is the target for many long USD traders.
If nothing else, we'll see commodities, like oil (USO) and gold (GLD) fall on the strength of the US Dollar.
PowerShares US Dollar Index Bullish (Prefer inverse ETFs? UDN is $ Bearish Index) – Click to Enlarge
That's right folks, the recent selling pressure has the market average closest to the 200 day MA (exponential) since July. As it stands now we are about 2% above the key trendline, which rests at $104.79 on the SPY. At first glance it looks longer-term bearish, however, that's not the case if the market holds above this level of support. Odds are that this will be a solid level for value seekers to enter the market.
The argument is two-fold, it's trend based and volatility based. Take a look at both charts below–the S&P500 and CBOE Volatility Index both show that the market has 2-3 percent MORE to lose before finding a short-term bottom. Of course, if we break below the 200 day for two or three days I'll update the post as it would alter the outlook in a meaningful way.
Click on the images to expand
S&P500 Daily (200 EMA)
CBOE Volatility Index
Take a look at the ETF heat map below - we're looking at January performance (or YTD) so this gives you a solid idea of the winners and losers so far in 2010. I suspect there is a positive correlation between the overall market and individual sectors with respect to the January Barometer. That said, we may be looking at the strongest and weakest sectors of the year.
Here's what I see (sound off in the comments below if you notice anything else!): (Click to enlarge pic)- 90% of World Market Are Negative (Majority of Green are Short/Inverse ETFs)
- The Worst Performing Group Looks Like Basic Materials (XLB, GDX, XME, SLX)
- The BEST Performing Group is REGIONAL BANKS (KRE, RKH, IAT)
- Other Notable OUTPERFORMERS Include Japan (EWJ), Homebuilders (XHB), Russia (RSX), Global Shipping (SEA)
For those of you that receive our nightly Trader's Edge Report you know the importance of sentiment in the market place--investor sentiment can help you determine when the so called fear and greed on Wall Street is primed for reversal. In my trading Iconsistently use four different sentiment tracking charts, (1) CBOE Volatility Index, (2) CBOE Equity Put/Call Ratio, (3) RYDEX Ratio, and (4) ISE Call/Put Ratio. Each has it's own unique system to highlight market reversals (covered each night in Trader's Edge), but they all employ a similar contrarian strategy.
The reason I bring this up today, is based on the current sell-off in equities--as it stands right now, it's the strongest two day sell-off since last summer. As of now the CBOE Equity Put/Call Ratio is at extremes again - we measure extremes based on Bollinger Bands and as of now we are clearly outside the upper band. This means the Put/Call Ratio is very high relative to the past 20 days or that FEAR has reached an inflection point. The CBOE Equity Put/Call Ratio simply looks at the number of equity puts (bearish) traded compared to calls (bullish) traded, it's falls lower as market participants become more bullish and vice-a-versa climbs higher as participants become more bearish.
Market reversals tend to occur when fear and greed saturate the markets. In today's case we are seeing an extreme amount of puts traded, so much that it is unhealthy for the current trend. Take a look at the graphic below to see recent patterns with the Equity Put/Call Ratio and the S&P500.
CBOE Equity Put/Call Ratio
Our good friend over at Tickerville, Quint Tatro, invited Andrew Hart as the options guest on his weekly radio show Tape Talk this week. Tape Talk cuts through the noise and takes you through the tape each week giving you the power to control your investments.
The show originally aired on Sunday and covers a wide range of market topics from S&P500 support and resistance to my current view on the market. This episode is well worth the time so sit back, relax, and crank up the volume and listen to the tape talk. For other streaming episodes check out Quints blogtalkradio page for Tape Talk.
Finally, for those of you interested in live analysis with Quint make sure to sign up as a BigTrends Insider to receive an invitation to his upcoming webinar to BigTrend Traders.
It's that time of year again when investors start adjusting the rear-view [investment] mirror as they look forward to a new year of money making trends. It's a good time to peruse the free analysis available, all-the-way from the top investment banks down to your local advisor, but be selective and filter out the noise because a lot can be misleading or incorrect.
That said, I found this handy little document called, Goldman Sachs Global Viewpoint - Top Trade Ideas for 2010, which covers Goldman's (GS) top 8 trade ideas for 2010. In my view, it's well worth the time to scroll through the short 7 page analysis, there are some ideas that I agree with - for example, Trade #2 is LONG RUSSIA Equities (RSX), this points towards the strength in BRIC countries (BTW, Goldman coined that acronym back in 2001), however, I would expect Brazil (EWZ) to be a larger beneficiary of BRIC investments next year. I'll be covering the details of Brazil in BigTrends 2010 Outlook due out next week (sign up for a free BigTrends Insider account to receive)
Tell us what you think about these trade ideas below, I'm especially interested in the 12 month volatility play...
It looks like traders are still digesting Friday's job news as the market is in a holding pattern with major indices mixed. Gold continued to move in big ways and oil may be breaking out of it's recent bear trend (Are Gold and Oil set to revert back to their means? GLD / USO Pair Trade??)
Check out this 5 minute video on GLD, OIL, and UUP and let me know what you think