In part 1 of our commentary, we discussed the current Fundamental Gravity of our “Reflation&rs...
Three S&P-Beating Global ETFs
08/01/2011 11:20 am EST
While the S&P 500 struggles amid fear and uncertainty in the US, these three Asian ETFs show strong chart patterns and good fundamentals and are likely to outperform in the months ahead.
The technical action at the June lows looked quite promising, but the rally ended much sooner than expected when the market finally gave up on Washington’s ability to solve anything. Now that it seems that a deficit-reduction plan is in place, stock index futures are sharply higher in early trading and the oversold readings suggest we could still go higher.
Since the June 24 closing low in the Spyder Trust (SPY), the fund is now up just 2%. The three consecutive lower monthly closes have clearly dampened investor enthusiasm as we enter the most difficult of the summer months.
Still, there are three global ETFs that have more than doubled the performance of SPY, which show positive relative performance versus the MSCI World Average. These global ETFs could be start performers when we enter the much stronger fourth quarter for stocks.
Chart Analysis: The Spyder Trust (SPY) closed Friday at $129.33, which was just below the daily Starc- band. There is next good support in the $126.19-$126.64 area. The March 2011 lows came in at $125.28.
- There is first resistance at $130.60 with further resistance at $131.77-$132, which includes the 50% retracement resistance. It would take a close back above $135 to reassert the uptrend
- The McClellan Oscillator closed Friday at -264, just barely above the March lows at -268. In May 2010, it went as low as -417. The McClellan Oscillator has strong resistance in the 0 to +60 area
The iShares MSCI Singapore Index (EWS) was up 0.7% last week, which is in sharp contrast to the 3.9% drop in SPY. EWS is now testing resistance at $14.46-$14.56, which dates back to November 2010, line a. Since the June 24 close, EWS is up 8.7%, which is more than four times more than the returns for SPY during that period.
- A convincing breakout of this trading range has upside targets in the $16.50-$16.80 area
- The relative performance, or RS analysis, looks at the performance of EWS compared to the MSCI World Index. It has already broken above major resistance (line b), suggesting prices are likely to follow
- The daily on-balance volume (OBV) has also moved through its resistance, line d, already completing the triangle formation
- There is initial support at $14-$14.20 with much stronger support in the $13.70-$13.85 area
NEXT: Two Other Asian ETFs Outperforming the S&P 500|pagebreak|
The Market Vectors Indonesia Index (IDX) completed its continuation pattern (lines a and b) in early July and has reached the initial upside targets in the $33.50-$34 area. It is up 10.5% since the close on June 24. The weekly Starc+ band is at $35.20 this week.
- The RS broke out in February and has surged to the upside recently after being in a clear uptrend for several months, line c
- The daily on-balance volume (OBV) confirmed the completion of the triangle formation, having overcome resistance at line d and still acting strong. The weekly OBV (not shown) is also positive and confirming the price action
- There is first support for IDX at $33.38 and then much stronger support in the $31.90- $32.40 area
The daily chart of iShares MSCI South Korea Index Fund (EWY) is still locked in a wide triangle formation, lines e and f, but the fund is still up 5% since June 24, outperforming SPY by 3%.
- There is initial resistance now at $66.60-$66.90 with more important resistance at $67.50-$68 (line e). The completion of the triangle formation has initial targets in the $74-$76 area
- The RS versus the MSCI World Index has already broken though resistance at line g. This is generally a leading indicator and is therefore bullish for EWY
- The OBV is lagging the price action, as it is well below the April highs and has not yet moved above the short-term resistance at line h
What It Means: Last week’s decline did cause some technical damage in the major US market averages, with the exception being the technology-heavy Nasdaq 100 Index, which is still holding above the June lows.
These three Asian ETFs have positive fundamentals that support the bullish price action. The better relative performance indicates they should continue to be some of the world’s star performers.
How to Profit: On July 1, I recommended buying the Market Vectors Indonesia Index (IDX) at $31.36, but it never dropped below $31.75. Buyers can now go 50% long at $33.93 with a stop at $32.32 (risk of approx. 4.7%).
The iShares MSCI Singapore Index (EWS) could break out today after the Singapore market closed higher. On a close above $14.60, go 50% long on a pullback to $14.28 with a stop at $13.44 (risk of approx. 5.8%).
The short-term action suggests that the iShares MSCI South Korea Index Fund (EWY) could pull back before it tests major resistance. Go 50% long at $63.88 with a stop at $60.76 (risk of approx. 4.8%).
I previously recommended going 50% long the iShares MSCI Malaysia Index (EWM) at $15.16 and 50% long at $15.04 with a stop at $14.38. EWM is getting a bit too popular now, so I would recommend selling half the position at $15.48 and raising the stop on the remaining position to $14.67.
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