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A look at global equities
For the past decade, US stocks have been the place to be. The S&P 500 more than doubled relative to the MSCI World ex-US index. It’s not surprising that foreign stocks hardly get any attention anymore.
However, 2021 has had an interesting start and there could be new leadership emerging overseas. The SPY:VEU chart is breaking down.
Here’s the monthly chart of VEU. It made a 3-year breakout recently and has seen excellent follow through.
Looking at price charts of specific global regions gives us a lot to be bullish about.
Canada (EWC) just broke out of a 12-year base in recent months.
Japan (EWJ) came out of a multi-decade base in late 2017, and retested it during the 2018 and 2020 corrections. It recently broke out of a 3-year base.
Japan’s Nikkei shows plenty of blue-sky upside potential, as it can retest the 1989 highs.
Finally, Germany’s DAX index is starting the year with a fresh 3-year breakout.
There could be many reasons why we are seeing this outperformance in foreign stocks, including a weak US dollar and strong performance from industrials (steel, copper, lithium, etc), which non-US stocks have a larger exposure to. It could also be the lower valuations and sentiment.
But as trend followers, we focus just on the price action. Charts tell us that breakouts from long bases can unleash a lot of stored energy quickly.