Tag Archives: SPY

The Key Level for Equity Bulls

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Things could hardly be clearer for equity traders. There was a practically unanimous vote for a short-term bottom in mid-November as major indices became oversold. Traders then took us back to the ‘golden ratio’, the 61.8% Fibonacci retracement from the September high to the November low, which also sits just a few points above the 50-day moving average. We also have the April high to contend with, which is the blue line on the chart below. All of these levels collide at the 1420-1425 area. At the end of November I said that the markets seemed to be trading on the whims of Congress but the 1420 level would still be a healthy place to find resistance.

This is where equity bulls need to set their scopes. It was unlikely that the first attempt to break through these three levels would be successful, and they weren’t.  And they very well might not get a second or third chance…..that’s not for me to decide.

I continue to lean to the possibility we get reintroduced to the November low, and as I’ve said before, I’d be happy to change my sentiment when price action tells me to. With that, I’ll be watching how various market segments perform if we get the opportunity to re-test the 1420-1425 area.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

A Shift In The Global Outpeformance of U.S. Equities

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U.S. equities have recovered nicely, taking the S&P 500 back to its  61.8% retracement level before starting to consolidate and see some weakness here recently. While the U.S. markets have been doing fairly well on an absolute basis, they have been hitting new lows in relation to the rest of the world.

Today we are going to take a look at the ratio between the S&P 500 SPDRs ETF (SPY) and the Vanguard All-World ex. US ETF (VEU), which we last talked about in late-July. With this relationship we can see which is outperforming, the S&P or essentially everyone else. SPY is outperforming (either gaining more or losing less) VEU when the green line is rising, and the opposite is true when it is falling.

In late July we saw the ratio between these two ETFs slightly exceed the previous high set in May. However, the Relative Strength Index did not confirm this new high, diverging from price and working off its overbought levels as it dropped below 70.

As the relationship between SPY and VEU continues to fall and puts in lower lows, momentum  is beginning to diverge once again. The RSI indicator has continued to bounce off the 30 level, practically refusing to become oversold in the traditional sense. This could be a sign that the mutli-month under-performance that’s taken place for U.S. equities could be ready to shift.

Even though it appears we are experiencing a change in momentum, I view that as just an early warning sign. I will be looking for the ratio between SPY and VEU to start some kind of consolidation to get confidence in the shift in relative performance between global and U.S. equities.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.