Look outside of North America for opportunities

America may be known as the “land of opportunity” insofar as its more liberty / entrepreneur environment. That being said – the US stock market may have entered into a prolonged period of relative underperformance. Same too for the Canadian markets, given our less business friendly federal government and other challenges.  Two opportunities outside of NA are particularly appealing to me as a diversification outside of NA.

Emerging markets

The first opportunity, as discussed on this blog,  is the emerging markets. I’d suggest you read that prior emerging markets blog to get a handle on how to evaluate the various ETF’s out there. ETF’s are not all the same–they vary in country mix or weightings within the countries that make up the emerging markets group. The chart below is an updated chart for the SPDR emerging markets ETF (EEM-US). Note the breakout—As I suggested we may get such a breakout on the prior emerging markets blog, this makes the sector appealing. EEM is now above the 200 day SMA again—adding to the appeal.

 

Europe

Next, lets look at the European markets. As noted in my emerging markets commentaries – there are many countries clustered together in a European ETF. Many different ETF’s are available, and most of them have different mixes of countries and weightings. Do your research – there is no “best” ETF for either of these opportunities. Further, just like with emerging markets, you can cherry pick the individual markets if you wish to focus on the best charts within the overall European markets.

So – with that in mind, lets take a high level view of the European markets via the iShares IEV chart, below. You’ll note that this chart is not as far along as is the EEM chart. It staged a rare “V” reversal- and is arguably not yet above its downtrend. The prior peak within the downtrend at $42.50 needs to be taken out. Its below its 200 day SMA. So, we might want to do what I suggested we do for the emerging markets last month…wait for confirmation of a break in the downtrend. A move above $42.50 for a few days would be good. A move above $43 (roughly where the 200 day SMA sits) would be even better.

 

Conclusion

The emerging markets look ripe for the picking. It’s a higher risk sector, so do use some discrepancy if you decide to buy an ETF in that market. Research the options, and weight the position accordingly. Its not a sector for those with low risk tolerance.  Europe, meanwhile, probably needs some good news surrounding Brexit talks or who knows what in order to complete a bottom breakout. But, the chart will tell us when to buy in any case – so I am not going to stew too much about what that catalyst might be, or when it happens. It is looking very promising so far. Keep a sharp eye on this chart.

 

Final reminder

If you are in Florida as a visitor, a snowbird, or as a resident, you might like to attend the MoneyShow. I’ll be speaking at the Orlando MoneyShow this Friday Feb 8th at 3:00pm at the Omni Resort at Championsgate. If you haven’t been to that resort, it’s quite lovely–and parking is free! The link below references my talk:

KeithRichards.OrlandoMoneyShow.com

 

Keith speaking at Ryerson

I’ll be speaking for a student Technical Analysis group at Ryerson University. This event is free and open to all students – I believe that you don’t have to be attending a Ryerson program. Contact the administrator for greater details. Details are on the link below:

CMT Wiley Ryerson Event Feb 28

12 Comments

  • Keith: Thanks so much for the informed commentary. I believe you mentioned ETF: Zem. Do you still like this one? Theres no Europe in it , in fact its similar to EEM only $C.

    Reply
  • Keith. Your thoughts on an emerging market ETF mix of; ZEM ZID XCH. (More India/China focus) They have preformed well over the last several months. Max 5% of an equity portfolio.

    Reply
    • Doug I can’t advise you an an appropriate mix or specific securities etc–legally I dont hold enough info on you and I cant be responsible for advising somebody who doesnt deal with us
      What I can say is that I own ZEM (BMO emerging mkt ETF) in our equity platform 5% position as of today
      That may not be appropriate for you – its just what i own.

      Reply
  • I hold a position in ZEE, Vanguard’s Emerging Market ETF. Its performance vs. EEM is similar. Bought and held 5 years ago, the return, according to StockCharts would have been 44.03%, an average of 8.8%. Not too shabby.

    Incidentally, to you follow On Balance Volume?

    Reply
    • I do look at on balance volume fred–its turning up for the eem and other such etf’s

      Reply
  • I just attempted to post a comment but your “Captcha” kicked me out and obliterated my comment.
    What is 5X4. Captcha rejected 20. I was commending you on your prognostication of the “new” downfall.

    Reply
    • Fred
      As you see here, your comment got through. I’m not prognosticating on a downfall–I am merely reacting to a quantitative reading (momentum/short term timing model plus bear-o-meter) of increased risk. Increased risk does not automatically imply downside. Its just a higher probability. Hence, my cash.

      Reply
  • Hi Keith, just wondering if you CAN ever be 100% in cash or are you limited like mutual funds to a certain percentage cash? (was just reading Ken Norquay’s latest piece on “advice for investors” which brought the question to mind).

    CAPTCHA trouble here too-reposting

    Reply
    • Good question Henry
      We can go 100% cash- our Management agreement spells that out (we have a 0-100% cash allowance, meaning any amount we want). As a matter of philosophy and practicality though, we have yet to go over 50% cash (we did go 50% in 2011, and that was a great call – then we did again in 2016, and we looked right for a while, then dead wrong when markets quickly spiked up again after the first quarter).
      The reasoning behind never going full cash is that everything anyone like me does is really just a measurement of probability–not absolutes. Thus, to go fully out is basically saying you are 100% sure you are right that your bearish / higher risk outlook is right. That is not a call I am willing to make.
      I measure risk vs reward–if markets are higher risk, it simply means they are higher risk to fall, but not guaranteed to fall. They can, and sometimes do, climb in a high risk environment. Best example was the second half of 2017. Super high risk — PE ratios on FANGS were high, volatility was unsustainably low, momentum was endless, sentiment was stupidly bullish…too good to be true..and January 2018 finally proved it WAS too good to be true…but that took 5 months to materialize. Meanwhile, 100% cash would have been a pretty hard thing to hold. We were 35% cash and our performance suffered vs. the market – until it was vindicated in 2018..where we outperformed due to the same cautious stance that held us back in 2017.

      Reply
  • Hi Keith. Thanks so much for all the technical info you share. You talked then about EEN and ZEM. As usual you were dead on. I take it technically you don’t set firm targets, just go with the flow. So, with that being said are you still good with the Emerging markets or is there a target you are shooting for?

    Reply
    • Tom – my targets with some stocks/ETF’s are kinda “both”–ie go with the flow, with an eye on various resistance points.
      $21 resistance is approaching for ZEM. we shall see from there….

      Reply

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