May 21st, 2009

U.S. Stocks: The World’s Laggards

While we may feel pretty good as a result of its 33% increase since March 9, the US stock market gets failing marks in one category; it’s the world’s laggard as far as the speed of its recovery. But in “The Next Industrial Revolution” of April 17, I wrote:

While we’re pointing fingers and trying to figure out who to blame for the mess we’re in, trying to figure out which industry group is going to lead us out of our bear market, whether GM will go into Chapter 11, whether commecial property and credit card debts are the final shoes to drop and whether the market will start correcting at 850, 900 or 950 …. while that’s what we’re focused on, markets around the world aren’t waiting for us and are forging ahead…..

We’re going to hear a lot more again about resource shortages, escalating commodity prices and booming international stock markets. If you don’t feel comfortable buying foreign ADR’s, you can participate through the foreign market ETFs.

A month later, we find that all the twenty-three ETFs cover stocks in other countries have risen sufficiently to have crossed above its corresponding 180-day moving average but the S&P 500 Index and Russell 1000 and 2000 have not. The advantage of this metric is that it reflects the extent of both the declines and the recoveries. Here is a list of all those ETFs:

[By the way, although I used the 180-day moving average because that’s the benchmark I use for the market’s issuing a green light, all-clear, all-in signal the results are not significantly different if I had used the 200-day or 300-day MAs.]

Before the financial crises devastated markets around world, we were astounded at how foreign markets were out-performing the US stock market (see July 24, 2007, “U.S. vs. Foreign Stocks: A Follow-up“)and now we are watching those markets recovering faster than US stocks.

Each of the charts for these ETFs show the similar reversal patterns (mostly inverse head-and-shoulders) but most of them have crossed the necklines and advanced beyond sufficiently to cross the key moving average. One can say they’re all wrong and the US market is right. On the other hand, we could optomistically say that those markets are leading indicators, the US market is a laggard and it will soon lurch forward, cross the neckline/180-day MA and advance to 1050, the next hurdle of the 300-day moving average.

In the meanwhile, while your waiting for the US market to signal a green light, take advantage of the new, wonderful tools created by those mad financial inventors. Put some money into foreign ETFs (also look at foreign currency ETFs -FXA, FXF, FXC, FXB and UDN – they’ve formed reversal patterns too as the $US has started to decline in value against other currencies.)

Note: I’m going to deflate a few of the foreign market ETFs by their forex indexes into indexes that reflect the indexes in approximate local currency. That would perhaps be a truer measure of what local shareholders in those stocks are seeing.

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