Chart Advisor: Looking Outside the US

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By J.C. Parets & All Star Charts

Thursday, 19th January, 2023

1/ Looking Outside the US

2/ Growth Finds a Floor

3/ Bond Investors Embrace Risk

4/ Dr. Copper Is on a Run

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1/ Looking Outside the US

It has been about 15 years since international stocks outperformed stocks in the United States over any significant timeframe. Simply put, the U.S. has been the best place to allocate capital for a very long time.

With the S&P 500 (SPY) versus the Developed Ex-North America Index (EFA) hitting new 52-week lows, we’re starting to see strong evidence that this trend is changing.

Source: All Star Charts, with data provided by Optuma

In fact, since November, EFA has outperformed SPY every single week except for one. That would make for international outperformance in 10 of the last 11 weeks.

This is a big deal as EFA is loaded up with European and Japanese stocks, and serves as a great gauge for equities in developed countries outside of North America. This kind of relative strength indicates we could be in for a major regime change in favor of ex-U.S. stocks. It is also a positive development for risk assets in general.

2/ Growth Finds a Floor

The ARK Innovation ETF (ARKK) has been in a steep downtrend since it peaked in February 2021. But more recently, it has exhibited some signs of life, especially in relative terms.

Here’s ARKK versus SPY bouncing off a critical support level at its prior cycle lows from 2016.

Source: All Star Charts, with data provided by Optuma

Not only is there a bullish momentum divergence in place, but the ratio is finding support exactly where these long-duration growth stocks started to outperform in the prior cycle.

It would be a logical place for ARKK to catch a bid relative to the broader market and reassert its leadership role at current levels. The relative weakness that has plagued the most speculative growth stocks over the past few years could be coming to an end.

3/ Bond Investors Embrace Risk

Investors are reaching for risk. We’re witnessing it in the stock market as biotech names catch higher, across the commodity space as copper works on its tenth consecutive up-day in a row, and even the bond market as the Emerging Market Bond ETF (EMB) challenges fresh seven-month highs relative to U.S. Treasurys (IEF).

Check out the overlay chart of the EMB/IEF ratio and the SPY:

Source: All Star Charts, with data provided by Optuma



4/ Dr. Copper Is on a Run

After retesting its prior cycle highs last fall, Dr. Copper is on the verge of posting its tenth consecutive day of positive returns. 

The strength from this industrial metal speaks volumes for risk appetite as well as the overall market and global economy.

Source: All Star Charts, with data provided by Optuma

Despite recent layoffs and recessionary fears, the market continues to relay quite a different picture. 

It’s reasonable for a period of digestion to follow a nine-day winning streak, of course. Remember, price doesn’t move in a straight line.

Regardless, an uptick in demand after retesting the prior cycle highs from above is anything but bearish.  

Originally posted 19th January November, 2023

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