Is the Big Money Moving Overseas?

04/26/2013 10:30 am EST


Thomas Aspray

, Professional Trader & Analyst

For most of the last decade, emerging markets outperformed the US, but stumbled when the financial crisis hit, and today, MoneyShow's Tom Aspray checks out whether it's time to move into those markets again.

Once again stocks opened firm and had strong gains in early trading as the sharp drop in jobless claims gave the market an additional boost. Though the market internals were almost 2-1 positive, most of the major averages topped out early in the afternoon and closed well below their best levels.

This indicates that we may see a brief pullback before the all-time highs can be challenged or exceeded. Today, we get the preliminary reading on GDP, as well as April’s consumer sentiment from the University of Michigan. The futures are down slightly in early trading.

The overseas markets have been quite strong this week as the German Dax Index is up 4.4% from last Friday’s lows. Both the Dax and Hong Kong’s Hang Seng Index have been diverging from the US markets since early in the year when they topped out.

Some Asian markets have also been strong this week, so is now the time to shift some money into the overseas markets and if so which ones?

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Chart Analysis: The daily chart of the German Dax Index shows the break of support, line b, in the 7500 area last week.

  • The Dax is still down 3.5% from its highs despite this week’s rebound.

  • There is next resistance at 7885 and the former uptrend, line a.

  • A close above this level will be the first sign that the major uptrend has resumed.

  • There is further resistance in the 7950-8000 area.

  • On a pullback, the first important support is now in the 7630 area (line b)

  • The correction from the early 2013 highs held above the 61.8% Fibonacci from the late 2012 lows.

The weekly chart of the iShares MSCI Germany ETF (EWG) has dropped back to test the early 2012 highs at $23.83, before rebounding this week.

  • From the February 1st high to the lows last week, EWG had dropped 9.6% and just slightly exceeded the short-term 50% Fibonacci support.

  • The rebound over the past four days has just reached the quarterly pivot resistance at $24.88.

  • The downtrend is at $25 and a close above the swing high at $25.25 would be much more positive.

  • The weekly OBV moved above its WMA last July when EWG closed at $19.66.

  • OBV dropped back below its WMA in late February but is now trying to turn up from support at line e.

  • There is initial support now in the $24-$24.25 area.

NEXT PAGE: Are Asian Tigers Ready to Roar Again?


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The iShares MSCI Indonesia Investable Market index (EIDO) broke out of its sideways pattern (lines a and b) in early February. This was quite a few days after the weekly studies turned positive.

  • The short-term flag formation, lines c and d, was completed this week.

  • This formation has upside targets in the $37-$38 area.

  • The relative performance has turned down below its WMA.

  • The RS line has next support at line c, with the weekly (not shown) also positive.

  • Volume was heavy yesterday and the OBV appears to have held its support at line d.

  • The weekly OBV (not shown) has confirmed the breakout as it is well above its prior high.

  • The breakout level is at $34.84 with the monthly pivot at $34.23.

  • There is now more important support now at $33.47.

The iShares MSCI Singapore Index (EWS) gapped to the upside Thursday and closed well above the resistance at line e. This is despite some recent economic data that suggested their economy was weaker than expected.

  • The near-term upside targets and the weekly starc+ band is in the $14.50 area.

  • The high from 2011 was at $14.61.

  • The relative performance appears to be forming a short-term bottom, line g, and now needs to move above its previous high.

  • The daily OBV broke out in early April and has turned up from support at line h.

  • The weekly OBV (not shown) has moved well above the 2011 highs, confirming the price action.

  • There is minor support now at $13.90-$14 with the quarterly pivot at $13.75.

What it Means: The close today may provide some additional insight for the week ahead. Two of the markets I discussed mid- month as triple threats, that is gold and crude oil have rebounded. However, rates have continued to move lower, and it remains a concern for the market. Next week, the ECB is expected to cut rates. If they fail to cut rates again, it could be quite a disappointment for the Eurozone markets.

There has clearly been a rotation in the US sectors over the past few months as the small-cap and transport stocks have dropped from their highs. The action this week suggests that there may also now be a rotation into the overseas markets.

A shallow pullback in iShares MSCI Germany ETF (EWG) and the iShares MSCI Hong Kong ETF (EWH) would support this view. On the other hand, a strong reversal could mean that this week’s action in these two markets may just be an oversold bounce.

The Asian ETFs do look much stronger, and I expect them to continue higher.

How to Profit: Would add to positions in the iShares MSCI Singapore Index (EWS) at $14.03 or better with a stop at $13.56.

Portfolio Update: As recommended in January. Should be long the iShares MSCI Indonesia Investable Market index (EIDO) at $30.51 and use at stop now at $33.37.

Also previously long the iShares MSCI Singapore Index (EWS) from $13.62 and used a stop at $13.56.

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