Global markets have been enjoying a period of ‘risk on’ the past week with the S&P 500 slightly breaking past the previous short-term high set on June 19th. However as we monitor this advance it’s important to recognize that the McClellan Osc. once again has breached a level of being overbought. Time will tell if this puts an end to the rally or if price is able to work through this short-term overextended level.
Below is a chart of the ratio between the SPDR S&P 500 ETF (SPY) and the Vanguard FTSE All-World ex-US ETF (VEU) . I use this chart to keep track of which is outperforming between the U.S. market and the rest of the world. When the ratio is advancing we know that SPY is outperforming VEU and when declining the opposite is true. Currently the U.S. index has been underperforming since the low back in early June. The ratio has also created a flag pattern, which can be viewed as a possible continuation pattern to the upside. We shall see if the ratio has a positive break, giving an indication the U.S. is back in the driving seat.
