Many global stock markets are seeing a late spring recovery rally after a difficult April. Today international equity markets can move in tandem, but at different speeds. China might be heading south at 50 MPH while India is going north at 35 and money flows across international boarders in deregulated world economies speed the differential performances between markets. We at Delta Global Advisors advocate exposure to foreign markets much like the great investor Sir John Templeton said, "diversify among nations, industries and types of securities".
I keep an eye on more than 2-dozen world equity markets in 4 broad regions and our database quickly categorizes 9 major economic groups in each region and gives a current assessment of current risk level every group. Furthermore, the 4 major regions can access technical data on 125 - 700 stocks each, depending on the number of actively traded stocks in a particular market. Following, then, is a fly-over look at the how I see the technical conditions of various markets worldwide.
Domestic Markets
Dow Jones Industrial Average (DJIA)
• Technical Comment - Trend Bullish, Buy on Pullback
Was the spread triple top breakout due solely to June option expirations? Is the market telling us the Fed is nearly done hiking rates? Is the earnings outlook likely to stay strong with the majority of companies reporting earnings above consensus? The nasty Spring sell-off had erected a formable upside barrier to any further recovery in the Dow, but spread triple top breaks tend to be patterns I consider very meaningful. The recent break you see in the chart below turns the trend for the Dow back to positive with a price objective of 11,150. While seasonal factors would seem to be at odds with this break and price objective, the Dow could at least reach up to the March highs of 10950. A pullback would be a lot more comfortable way to enter this market, but its recent refusal to do anything meaningful on the downside suggests we might not get that opportunity just yet.
NASDAQ Composite (COMP)
• Technical Comment - Trend Bearish, wait for breakout.
We have seen some of the traditional NASDAQ sectors perform much better recently. The software, Internet, biotech and semiconductors stocks have experienced dead cat bounces off the early spring lows. However, we still see small cap stocks performing better than large cap issues, which could continue to hold back gains in the Composite Index itself. The same spread triple top breakout that the Dow saw last week would occur at 2120 for the NAZ, so investors should keep an eye on this level. Absent that break, the index has work to do to prove this is more than just an oversold bounce from its 10% correction this spring.
International Markets
S & P Toronto Stock Index (SPTSE) - 555.76
• Technical Comment - Trend Bullish, textbook up-trend sinceAugust 2004.
This capitalization-weighted index has been in a strong up-trend since late last summer. Strikingly, this commodity-related economy really didn't miss a beat in the commodity market sell-off in April and in fact it just gave its 5th consective buy signal in early June. Components of the TSE are laden with names from the materials, energy and transport sectors, recently seeing a re-emergence due to yet another spike in crude oil. While the technical picture is largely positive for the Canadian market, investors should keep in mind that the support line lies well below at 480. In addition, a significant spread quadruple bottom break would occur at 486, but the area just below 500 would likely act as support before such a breech.
Nikkei 225 Stock Index (NKY) - 11514
• Technical Comment - Trend just turned positive, could reachfor spring highs?
With a strong 10800 support in place, the Nikkei just burst through the bearish resistance line at 11450. This break suggests a price objective into the 12100 area. Is the Japanese market finally awakening from its long slumber? Since there have been so many false signs of hope in recent years, we are no different than most in approaching this market with great caution and skepticism, especially an economy so dependent upon oil imports, but investors can snoop around this market for names they might be comfortable nibbling on slowly.
FTSE 100 (UKX-LN) - 5077.77
• Technical Comment - Trend Bullish, textbook up trend sinceAugust 2004.
The FTSE has been up by 50% since March of 2003. Despite any turmoil in the nearby Euro Zone and the slowly eroding popularity of Tony Blair's government, stocks in the U.K. have continued to climb. Currently, the index is at the top of its expected trading range. Seasonal factors would now weigh in on our strategy, as the FTSE tends to experience sell-offs in the summer (notice these as marked in the chart below by the "7" - July - in 2004 and 2003 and the deep decline of 2002 that ultimately bottomed in October). Since the price objective has been fulfilled on the FTSE, investors should now consider lightening up in their positions or at least placing protective stops on their holdings in this market. The notion that a rate cut may be coming not only to the Euro but to Britain, as well, continues to stand as a potential risk to the strength of the Pound, and currency risk is something U.S. investors need to keep in mind when analyzing any foreign market, to be sure.
When investing, studies have shown it's even more important to accurately predict the direction of the market than an individual stock within that market; in the investment world, then, rising tides do indeed seem to lift all boats. As I mentioned earlier, the comments above are merely meant to give investors a big-picture view of the technical condition of certain markets worldwide. Since most investors tend to focus primarily on fundamental analysis and our ability to provide meaningful technical analysis on foreign markets is particularly unique and I hope the comments above are of interest.
Investors who might like to explore the technical conditions of their individual stocks, foreign as well as domestic, are welcome to contact us for a check-up.
**The above commentary is an excerpt from one currently available on our website, www.deltaga.com, which includes a technical look at both China and India.
