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LISTENING TO THE COMMENTATORS

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Last week, both the Dow Industrials and the S&P 500 broke out to new highs last week in show of modest strength; but what we find more interesting that this circumstance... is that the foreign markets aren't outperforming the US large caps. One only need understand that TV commentators; Wall Street strategists and the trading public is enamored with foreign market exposure , whether it be developed markets - or even emerging markets. A majority of incremental funds allocated to US mutual funds have gone towards international funds. This love affair with all things "international" is quite likely coming to a close.

We'll simply show the ratio of the S&P 500 large caps (SPY) versus the Morgan Stanley EAFE Index (EFA), which tracks only international stocks. While money has poured into this sector, we find that since April 2006 - the out-performance has been minimal - especially given all the "hoopla." Too, we find the ratio has formed a bullish wedge bottom, with prices trading right below their 60-week exponential moving average. If prices breakout above this level - then this event would serve as confirmation to us that a multi-year period of international underperformance is ahead.

When you hear TV commentators or Wall Street strategists opine that the US is decoupling from international stocks; don't think again - they're right - but they are wrong given the US is very likely to outperform international stocks. This clearly will catch everyone offsides; which typically happens at major trading inflection points. Attention is to be paid.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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