Chart Advisor: Comparing with Internationals

Articles From: Investopedia
Website: Investopedia

By Adam Koos, CFP, CMT, CEPA

1/ Going International

2/ Home Country Bias

3/ Small-Caps

4/ Large-Caps

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1/ Going International

I focused the last two days charts on stocks and bonds, but today I want to fly across the pond and discuss our international brethren to see how healthy non-U.S. stocks are today.

Let’s start with the iShares MSCI ACWI ex-US ETF (ACWX), as it’s a pretty good representation of the non-U.S. markets overseas. 

As you can see, international markets as a whole bottomed on/around the same time as the U.S. markets (not pictured).  However, it’s been choppy ever since, with a few lows being printed just above $45/sh. 

For now, it’s holding above its 200 MA, but trading in a range, and I can’t really call this an uptrend or a downtrend.  There is a such thing as “trendless,” which is probably the best way to describe the aggregate international markets today.

2/ Home Country Bias

Every novice investor suffers from something called “Home Country Bias,” which is looking at your country’s major market indices and considering those indices “the ones to beat” if you’re “beating the market.” 

Well… if you live in the U.S., then in order to analyze overseas markets, it pays to observe the price, momentum, and trend of the U.S. Dollar.  When the Dollar rises, this helps stocks here in the U.S. perform well.  However, when the Dollar falls, this causes international stocks denominated in U.S. Dollars to rise, instead.

As you can see in the chart above, the Dollar is currently sitting at an interesting convergence, between:

  1. The COVID highs,
  2. Its 200-day moving average, and
  3. The formation of what could be a low Cup & Handle pattern, or perhaps it’s still building a base, with the most recent low being part of the right side of that base.

Bottom line, if the USD can hold these levels and head higher, this will be good for U.S. stocks.  If it can’t, then equities overseas are going to start to look more attractive.

3/ Small-Caps

If we dive deeper and split the international markets into emerging/small-caps and developed/large-caps, then we start to get a better idea regarding strength overseas.

We’re looking at the former, above, and as you can see, it’s been a pretty rough ride since the October lows.  Said another way, international small-caps have been water boarded as the EEM has been pushed below water (i.e., it’s 200 MA) a couple different times this year while it tried to gain some traction. 

These smaller companies overseas could also be subject to some tax-loss harvesting (something I mentioned in my analysis two days ago), which could cause some additional pain before we start to see a bid in these smaller overseas positions.

4/ Large-Caps

On the other hand, large-cap/developed markets overseas look a lot more like the S&P 500 (not shown).  We have some potential support that’s been holding throughout 2023, it’s recently popped its head back above the 200 MA, and the next line-in-the-sand would be the July highs.

While we can look at an investment like this and consider allocating to it, it’s my opinion that we need to go back to the U.S. Dollar and watch it closely for signs of potential direction in overseas stocks. 

That being said, there are better and easier ways to compare the strength in stocks, sectors, asset classes, and styles to one another.  This is what we’ll focus on tomorrow.  Meanwhile, if you have any questions at all, please feel free to email me, personally!

Originally posted 29th November 2023

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