How To Profit From a Massive Rotation in Asian Markets | RRG Charts

It has been some time since we mentioned worldwide inventory markets.

Above is the Relative Rotation Graph that reveals the rotation for a gaggle of worldwide inventory market indices in opposition to $DJW, The Dow Jones International Index.

this chart I see two huge(ger) rotations which are most likely value monitoring and presumably buying and selling.

US vs Europe

The primary one is the connection between the US and Europe. On the chart above the tails for $SPX and $E1DOW are a bit coated by different markets so I highlighted them within the RRG beneath to raised see their present rotations.

After a interval of outperformance, the European market(s) have now turned down into the weakening quadrant the place the tail stabilized and began to maneuver decrease on the JdK RS-Ratio scale. The size of the tail signifies that the lack of relative momentum has been fairly highly effective thus far.

The S&P however, has rotated from lagging into enhancing and has not too long ago crossed over into the main quadrant once more. The tail is a bit of shorter than for $E1DOW and it’s nearer to the benchmark however that’s primarily due to the heavier weight of the US markets within the DJ International index.

There’s nonetheless an opportunity that Europe will curl again up whereas the US rolls over. Which might basically imply that the current rotations have solely been a pause within the outperformance of Europe over the US.

Nonetheless, primarily based on the person charts for each markets that appears to be the much less doubtless situation.

USA

The S&P is on its technique to breaking above its earlier excessive in the mean time which, in itself, is already a very good signal. However extra importantly, the relative energy line in opposition to The DJ International index is solidly shifting larger indicating a relative uptrend in opposition to the world.

Europe

The European index, however, has simply bounced off overhead resistance round 380. This has precipitated the RS-Line to start out rolling over which is now pushing the RRG-Traces decrease.

Not solely from a worth perspective is Europe now lagging behind the US but additionally in relative energy in opposition to the world. Each markets are at reverse trajectories, and these types of conditions all the time present good buying and selling alternatives.

A straight comparability between $SPX and $E1DOW on a day by day chart highlights the advance of the US over Europe in much more element.

Japan vs Hong Kong

The second main rotation that I see on the RRG for world indices is the one between Japan and Hong Kong. These tails are nicely seen on the RG on the prime as they’re additional away from the benchmark and the muddle of the opposite markets.

The RRG beneath zooms in on the rotation between these two Asian markets.

The alternative rotation is clearly seen and the size of the tails signifies the there’s fairly some energy behind each strikes.

Three weeks the tails crossed over from left to proper and v.v. confirming the change of development.

Japan

The Japane Nikkei Index is breaking past a serious overhead resistance stage in the mean time. It already appears fairly spectacular on the chart above, however after we change the chart to month-to-month and present extra historical past, issues are getting much more attention-grabbing.

Not solely are Japanese shares pushing to the best stage in additional than two years. This break additionally opens up the best way for a take a look at of the all-time excessive for the Nikkei index. And in contrast to many different markets, this all-time-high was not set within the final 3-4 years however greater than twenty years in the past.

And likewise, do not be fooled by the log scale on this chart. The extent of the 1990 peak is round 39.000. From present ranges, meaning an upside potential of round 25%.

This break additionally, on the similar time, limits the draw back danger because the earlier horizontal resistance stage can now be anticipated to return as assist in case of setbacks.

Hong Kong

How totally different are issues on the lookout for the Hold-Seng index…

This market simply convincingly dropped beneath its earlier low, which opened up the best way for an extra decline towards the 2022 low close to 15.000. From present ranges, meaning round 20% draw back whereas the upside is now capped on the breakout stage close to 19.000.

How To Play

Publicity to those worldwide inventory markets can simply be created by means of ETFs which are quoted on US exchanges (in USD). Two broadly used ETFs are EWJ for Japan and EWH for Hong Kong. So long as you notice that by utilizing an ETF quoted in USD to commerce a market that’s traded in one other foreign money implies a foreign money danger in your portfolio, you will be tremendous.

The chart beneath clearly reveals that the worth growth for EWJ is kind of totally different from $NIKK (which is what EWJ is monitoring)

The highest chart reveals the ratio between $NIKK and EWJ. The decrease chart reveals the $USDJPY change fee. As you possibly can see, that $USDJPY change fee just about solely explains the distinction between the $NIKK money index in JPY and EWJ in USD.

The issue with shopping for EWJ is that additionally, you will get a protracted place in JPY in opposition to USD which isn’t a most popular place in the mean time as USD/JPY has simply damaged necessary resistance ranges and appears to be underway for an extra rise.

So from a portfolio administration perspective, this can be a power to pay attention to because it has a adverse impact in the mean time.

For EWH, the impression is negligible because the $USDHKD change fee is pegged and hardly fluctuates.

Because the anticipated fluctuations within the underlying markets ($NIKK and $HSI) are fairly vital, the potential revenue from the directional strikes in these inventory markets will doubtless offset the drag from the change fee.

Right here is the chart of EWJ within the prime half and the ratio EWJ:EWH within the backside half.

#StayAlert, –Julius