Today was the last trading day of the month. Let's take a look at the where the monthly charts stand to asses the BIG picture. A few interesting developments occurred...
The S&P 500 spent over a decade consolidating the massive 1982-2000 bull market, before breaking out from the green line and resuming the bull market. The RSI on the monthly chart is also strong.
Yes, a consolidation here would be healthy but consider that we have 2 bullish cyclical trends in 2015:
- Presidential Cycle. The 3rd year is the most bullish of the four, with 16% avg. gain and 88% positive years
- Decennial Cycle. Years ending with a "5" (eg. 2015) have historically performed better than the other 9, with a 21% avg. gain and 83% positive years.
Perhaps the biggest potential in equity markets has to be in Japan. The NIKKEI has broken out from 25 year resistance! As we'll show further in this post, the YEN and NIKKEI:SPX ratio charts also confirm the bullish case for NIKKEI.
The USB (30-year treasury bond) monthly chart is shown below. Bonds have been in a 30+ year bullish channel. But now there are signs that this channel can roll-over. Notice how the RSI is showing bearish divergence. We are also right at RSI resistance (blue line).
A few months ago, the USD broke out of a 10-year base. It can consolidate here, but the big picture is healthy for the dollar. This is bad news for commodities & foreign currencies.
- USD:EUR = 57.6% weight
- USD:JPY = 13.6% weight
- USD:GBP = 11.9% weight
- USD:CAD = 9.1% weight
- USD:SEK = 4.2% weight
- USD:CHF = 3.6% weight
So if the USD is long-term bullish, are the charts for EUR, YEN, GBP and CAD bearish? You bet.
Below is the EUR monthly. This was the first month that the Euro closed below the neckline of a 10-year topping formation. There can be much more downside from here
Similar to the EUR, this was the first month that the YEN broke the neckline of a 30-year topping formation with bearish RSI divergence. As bad as the decline over the last 2 years has been, there could be a lot more downside left. This is good news for the Nikkei, but bad news for Gold.
Here's the XBP monthly. After hitting major resistance at the blue arrow, XBP has been falling for 5 consecutive months. There is nothing bullish about this chart at all.
Finally, here is the CAD monthly chart. Again - lots of room to continue falling.
If the USD is long-term bullish, are commodities bearish? You bet.
The CCI index equally weighs a basket of 17 commodities in agriculture, base & precious metals and energy. The CCI monthly recently broke the neckline of a 5-year topping formation
Copper is also breaking down from a 5-year topping formation. Notice long-term support is still quite a ways away like the CAD.
At the same time, gold miners (GDX) also closed below an important 20-yr support line. Notice the long-term bearish RSI divergence.
Following the OPEC meeting on Thurs, Oil fell 6% in one day and is down 18% for Nov. The chart below shows the bearish long-term picture.
$GNX is an energy-dominated commodity index. It broke a 15-year uptrend this month.
We've looked at asset classes in isolation above. Now let's look at ratios between asset classes.
The DOW:Bonds ratio is one of my favorite charts. Notice how the ratio spent 15 years digesting the 1982-2000 bull market. The ratio has been forming a tight coil this year and looks ready to make the big breakout to all-time new highs.
The SPX:GOLD ratio has also formed a long, rounded bottom with bullish RSI divergence. The base has broken out in recent months.
And here is the SPX:TSX ratio. The TSX is the Canadian market, which is dominated by oil & gas and mining companies. So this ratio is similar to the previous two, and has also completed a nice rounded base and is now in an uptrend.
In the 90's, the USD (shown in red) made a base breakout before starting a nice bull market. Notice that this coincided with the strongest years in recorded history for the SPX (shown in black). The USD is currently making a similar base breakout now.
We've made the case that US equities are the place to be for the longer term. Is there anything better?
Here's the Nikkei:SPX ratio. The Nikkei has lagged the SPX for 22 years, but now looks like it's creating a large base with bullish RSI divergence.
Recently, this ratio rallied, created a bull flag and now looks ready to rally to the base neckline. Again, the Nikkei and Yen charts above further support the bullish case for the Nikkei.
The monthly charts above show a long-term bullish picture for US & Japanese equities and the US Dollar, but a bearish picture for Treasury Bonds, Foreign Currencies (EUR, YEN, CAD) and Commodities (Gold, Copper, Oil, etc). This analysis is further confirmed with inter-market ratio charts.
The most promising area for a long-term buy might be Japan stocks. The Nikkei broke out of a 25-year downtrend while the yen broke 30-year support recently. Nikkei is also showing nice relative strength against the S&P 500.
The top holdings of the Nikkei are auto and electronics manufacturers. Going forward, these companies will benefit from falling commodity prices (reduced input costs) and a falling yen (higher export revenues). Add to this the record low interest rates (low borrowing costs) and BOJ's amped-up stimulus program (asset buying program increased from 60 trillion yen per year to 80 very recently) and you have all the right ingredients for a rally in Japan stocks.
The best vehicle for getting exposure to Japan would be through DXJ (the currency-hedged large-cap Japan ETF).
Hope you found this analysis useful and please leave me your feedback!