Global ETFs & Your Portfolio

05/15/2014 10:50 am EST


Thomas Aspray

, Professional Trader & Analyst

"Don't put all your eggs in one basket" is not only a common expression, but a wise one, too. Here, MoneyShow's Tom Aspray illustrates why that is so and reviews some holdings in the model portfolio to see how his efforts in this direction have fared.

Some traders and investors were disappointed by the stock market’s decline on Wednesday as the S&P 500 Homebuilding Index lost 3% with D.R Horton (DHI) down 4.1%. The next key housing data comes on Friday when we get the latest on housing starts.

One concern is that the recent breakout in the S&P 500 was a fake out and that it may have completed a more significant top. The daily on-balance volume (OBV) on both the cash and futures did confirm the price action by making new highs. The market internals on the NYSE Composite also confirmed the price action. To signal upward acceleration from current levels, the overall market needs to turn higher at the end of the week. The stock index futures are lower in early trading.

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Global yields fell even further on Wednesday with the 10-year Treasury note hitting 2.523%, which was the lowest level since last October. The conviction that the ECB would be forced to lower yields in June apparently fueled some of the buying. The Consumer Price Index comes out later this morning and yesterday’s PPI was much higher than expected.  As I noted last week, the decline in yields is also likely being fueled by short covering as there is still a heavy short position in the bond market.

Overnight economic data revealed better than expected GDP growth in Japan and also in Germany. Italy reported an unexpected drop in its GDP while the economy in France was flat.

Many investors still do not realize that in order to have a diversified portfolio, one must consider not only stocks and bonds but also overseas stocks. The performance chart shows that since 2012 Japan’s NK225 is up almost 65%, which is not far above the German Dax’s 61% gain. The S&P 500 is currently trailing the NK225 by about 17% while the DJ Brazil Index is down well over 15%.

This illustrates why investors should consider a small commitment to various overseas markets, but for most investors, the total in overseas stocks should be less than 20% of their portfolios. There are currently four global positions in the Charts in Play portfolio and let’s see how they look technically.

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Chart Analysis: The iShares MSCI Switzerland Index (EWL) was recommended in September 2013. The ETF has a current yield of 1.73%

  • The weekly chart shows a well established trading channel, lines a and b.
  • The monthly pivot and initial support is at $34.65 with six-week support and the 20-day EMA at $33.80.
  • The 20-week EMA was violated in February but not on a weekly closing basis.
  • The monthly projected pivot resistance is at $35.80.
  • The upper boundary of the trading channel and the weekly starc- band are in the $35.90-$36.10 area.
  • The weekly OBV broke through its downtrend, line c, at the end of February.
  • The OBV is well above its rising WMA and the daily OBV (not shown) is also positive.

The WisdomTree Japan Hedged Equity (DXJ) was recommended in March and has traded in a narrow range over the past six weeks. It has a current yield of 1.32%.

  • The weekly chart shows a triangle or flag formation, lines d and e.
  • There is initial resistance and the quarterly pivot at $47.48.
  • The upper boundary (line d) is at $49.21 and on a completion of the flag formation the 127.2% Fibonacci target is in the $57 area.
  • There is initial support at $44.75 with the monthly projected pivot support at $44.52.
  • The weekly OBV shows a pattern of higher highs and is above its rising WMA.
  • The OBV has more important support at line f.
  • The daily OBV (not shown) is below its WMA.

NEXT PAGE: 2 Other Global Plays


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Also recommended in Should You Go East or West? was the Vanguard FTSE Europe (VGK), which as I mentioned previously, is a low-cost way to participate in Europe’s growth. It has over 500 stocks with 20% in the top ten holdings.

  • The United Kingdom makes up 32.9%, with approximately 14% in France and Germany. It has a yield of 3.75% and an expense ratio of 0.12%.
  • VGK made a marginal new high at $60.84 last week.
  • The daily starc+ band is at $61.47 with the monthly projected pivot resistance at $62.54.
  • The upper trend line resistance is now at $62.62.
  • The rising 20-day EMA is now at $60.08 with the monthly pivot and the daily starc- band at $59.55.
  • The monthly projected pivot support is at $58.53 with the April low at $57.57.
  • The daily OBV has formed lower highs, line d, and closed yesterday below its WMA.
  • The daily OBV has further support at line e, and then the April lows.
  • The weekly OBV (not shown) is leading prices higher.

The Vanguard FTSE Pacific (VPL) has an expense ratio of 0.12% with 812 stocks. In addition to 56.4% of its holdings in Japan, it has 19.3% in Australia, 11.3% in Korea, 8.9% in Hong Kong, and 3.7% in Singapore. It has a yield of 2.56%.

  • The daily chart shows that the downtrend, line f and the starc+ band are being tested.
  • There is next chart resistance and the monthly projected pivot resistance at $61.11.
  • The weekly starc+ band is at $61.98 with the October 2013 high at $62.17.
  • The daily downtrend, line h, was broken on March 28.
  • The additional OBV resistance at line i was overcome Monday when the volume was five times the average.
  • The weekly OBV (not shown) may break out to a new all-time high this week.
  • The monthly pivot is at $59.05 with the projected support at $58.01.

What It Means: The action in the developed markets is confirming the action in the US as the Dax Index could stage a weekly breakout by the end of the week.

Even the Vanguard FTSE Emerging Markets ETF (VWO) is acting strongly this week as it is testing the highs from last October. A dollar cost averaging strategy for VWO was recommended last August.

How to Profit: No new recommendation

Portfolio Update: Should be50%long the iShares MSCI Switzerland Index (EWL) at $30.57, with a stop at $34.27.

For WisdomTree Japan Hedged Equity (DXJ), should be 50% long at $45.06. Use a stop at $44.74.

For the Vanguard FTSE Europe (VGK), should be 50% long at $58.16 and 50% at $57.28, use a stop now at $56.67.

For the Vanguard FTSE Pacific (VPL), should be 50% long at $57.36 and 50% long at $56.44. Use a stop at $56.18.

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