This week we have lots of charts showing essentially the same story – the global economy is on the edge. On the edge of WHAT you might ask? On the edge of important support levels and breaks below these levels would be bearish for the global economy.
So let’s start with our basic set up which is a weekly chart. The red dots on the chart are key pivot points, which are the best areas of buying and selling or support and resistance.
And this is your 40 week moving average.
Now let’s get technical!
Our first chart is a weekly chart of a continuous copper futures contract (symbol: @HG.C). Copper is the industrial metal with a Ph.D. in economics as its fortunes so often mirror the fate of the global economy. We have highlighted copper several times in these videos over the past 2 months first highlighting the breakout at the $3.70 and then only 3 weeks later, the failure of that breakout. Failed breakouts are never good, and as expected, copper is trading much lower. Currently, we find copper at the $3.40 support level. The message of copper: the global economy remains weak and vulnerable. A weekly close below the $3.40 level would be bearish and a close below the $3.28 level would coincide with widespread recognition of a global recession.
Our second chart is a weekly chart of the i-Shares FTSE China 25 (symbol: FXI). This highly liquid ETF tracks the performance of the 25 largest and most liquid companies in the Chinese equity market. After finding its footing with the rest of the US equity market back in November, 2012, FXI broke out above the key pivot at 36.78. By convention, a close above 3 key pivots is bullish, yet 4 months later, prices are back testing support levels. Like copper, FXI finds itself on the edge – a close below support won’t be good for FXI or the global economy.
Our third chart is a weekly chart of the i-Shares Latin America 40 Index ETF (symbol: ILF). This ETF invests in securities from 5 Latin American countries. Like FXI and Copper, this ETF also is on the edge sitting at support levels.
So what does it all mean? On the one hand, assets representing the global economy – excluding the US, Europe, and Japan – are underperforming. These divergences suggest that the equity rally remains at risk and is vulnerable. How long can the US, Europe, and Japan go at it alone and keep this rally going? On the other hand, if central bankers are able to keep the “balls in the air” a bit longer, copper, China and Latin America might represent good low risk opportunities. After all, you would be buying at support levels. Certainly, the bulls can point to a bounce in China (ooo hah –nothing like a rally in Chinese stocks to get the animal spirits going) and copper as reasons why this rally should continue.
Lastly, let me just suggest that this divergence between the global economy and the US, Europe, and Japan is really just the difference between the money printers and those that devalue their currency and everybody else.
So what does money printing get you? Look at the US and Ben Bernanke’s favorite speculative proxy. This is the i-Shares Russell 2000 Index (symbol: IWM). And of course, Europe cannot be outdone as this weekly chart of the i-Shares MSCI EAFE Index ETF (symbol: EFA) shows. And ditto for everybody’s favorite money printer and currency debaser, Japan. This is a weekly chart of the i-Shares MSCI Japan Index Fund (symbol: ETF). They really have this game down.
Maybe there is something to this money printing stuff after all?
Guy Lerner has beat the S&P500 21 years straight – see his asset model portfolio now!