It has been some time since we mentioned worldwide inventory markets.

Above is the Relative Rotation Graph that reveals the rotation for a bunch of worldwide inventory market indices towards $DJW, The Dow Jones World Index.

this chart I see two large(ger) rotations which are most likely value monitoring and presumably buying and selling.

US vs Europe

The primary one is the connection between the US and Europe. On the chart above the tails for $SPX and $E1DOW are a bit coated by different markets so I highlighted them within the RRG under to raised see their present rotations.

After a interval of outperformance, the European market(s) have now turned down into the weakening quadrant the place the tail stabilized and began to maneuver decrease on the JdK RS-Ratio scale. The size of the tail signifies that the lack of relative momentum has been fairly highly effective thus far.

The S&P however, has rotated from lagging into bettering and has just lately crossed over into the main quadrant once more. The tail is just a little shorter than for $E1DOW and it’s nearer to the benchmark however that’s primarily due to the heavier weight of the US markets within the DJ World index.

There may be nonetheless an opportunity that Europe will curl again up whereas the US rolls over. Which might primarily imply that the latest rotations have solely been a pause within the outperformance of Europe over the US.

Nonetheless, based mostly on the person charts for each markets that appears to be the much less doubtless situation.

USA

The S&P is on its solution to breaking above its earlier excessive in the mean time which, in itself, is already a very good signal. However extra importantly, the relative power line towards The DJ World index is solidly shifting increased indicating a relative uptrend towards the world.

Europe

The European index, however, has simply bounced off overhead resistance round 380. This has precipitated the RS-Line to start out rolling over which is now pushing the RRG-Strains decrease.

Not solely from a worth perspective is Europe now lagging behind the US but additionally in relative power towards the world. Each markets are at reverse trajectories, and these types of conditions all the time present good buying and selling alternatives.

A straight comparability between $SPX and $E1DOW on a day by day chart highlights the development of the US over Europe in much more element.

Japan vs Hong Kong

The second main rotation that I see on the RRG for world indices is the one between Japan and Hong Kong. These tails are nicely seen on the RG on the prime as they’re additional away from the benchmark and the litter of the opposite markets.

The RRG under zooms in on the rotation between these two Asian markets.

The alternative rotation is clearly seen and the size of the tails signifies the there may be fairly some energy behind each strikes.

Three weeks the tails crossed over from left to proper and v.v. confirming the change of development.

Japan

The Japane Nikkei Index is breaking past a significant overhead resistance degree in the mean time. It already appears fairly spectacular on the chart above, however after we change the chart to month-to-month and present extra historical past, issues are getting much more attention-grabbing.

Not solely are Japanese shares pushing to the very best degree in additional than two years. This break additionally opens up the way in which for a check of the all-time excessive for the Nikkei index. And in contrast to many different markets, this all-time-high was not set within the final 3-4 years however greater than 20 years in the past.

And likewise, do not be fooled by the log scale on this chart. The extent of the 1990 peak is round 39.000. From present ranges, which means an upside potential of round 25%.

This break additionally, on the identical time, limits the draw back danger because the earlier horizontal resistance degree can now be anticipated to return as assist in case of setbacks.

Hong Kong

How totally different are issues on the lookout for the Grasp-Seng index…

This market simply convincingly dropped under its earlier low, which opened up the way in which for an extra decline towards the 2022 low close to 15.000. From present ranges, which means round 20% draw back whereas the upside is now capped on the breakout degree close to 19.000.

How To Play

Publicity to those worldwide inventory markets can simply be created by way of ETFs which are quoted on US exchanges (in USD). Two extensively used ETFs are EWJ for Japan and EWH for Hong Kong. So long as you notice that through the use of an ETF quoted in USD to commerce a market that’s traded in one other forex implies a forex danger in your portfolio, you may be high quality.

The chart under clearly reveals that the value improvement for EWJ is sort of totally different from $NIKK (which is what EWJ is monitoring)

The highest chart reveals the ratio between $NIKK and EWJ. The decrease chart reveals the $USDJPY change fee. As you’ll be able to see, that $USDJPY change fee just about solely explains the distinction between the $NIKK money index in JPY and EWJ in USD.

The issue with shopping for EWJ is that additionally, you will get a protracted place in JPY towards USD which isn’t a most popular place in the mean time as USD/JPY has simply damaged vital resistance ranges and appears to be underway for an extra rise.

So from a portfolio administration perspective, this can be a pressure to concentrate on because it has a damaging impact in the mean time.

For EWH, the affect is negligible because the $USDHKD change fee is pegged and hardly fluctuates.

Because the anticipated fluctuations within the underlying markets ($NIKK and $HSI) are fairly important, the potential revenue from the directional strikes in these inventory markets will doubtless offset the drag from the change fee.

Right here is the chart of EWJ within the prime half and the ratio EWJ:EWH within the backside half.

#StayAlert, –Julius