European and China Market update

The recent market weakness in non-U.S. markets is something I am watching closely.

The reason why is because the emerging markets (including the BRIC countries; mostly China) and non-U.S developed markets were the ones that led the U.S. into the current market advance. As such, they may be the "canary in the coal mine" that telegraphs the next market decline worldwide.

It is these charts that have me worried and the reason I am not committing additional assets into equities at this point. I would need to see some bullish recovery in these to go "all in".

Just something to keep in mind over the next week or two.

Europe

A good proxy for non-U.S. developed market assets is the iShares MSCI EAFE Index Fund (EFA). With assets of more than $32 billion, iShares MSCI EAFE Index Fund is among the five biggest ETFs.

The tracking index is a popular benchmark for developed markets outside North America -- EAFE stands for Europe, Australasia and the Far East.


EFA monthly:



The monthly chart is looking bearish. Price is well below the 10 month sma as of this month with the RSI <50>

EFA weekly:



The weekly chart turned intermediate term bearish last week and broke below previous support on large down volume. This is a very bearish sign.


EFA daily:



The short term daily chart turned bearish on April 21 and broke the support level around 50. It recovered it briefly this week but could not hold it by weeks end. The short term chart looks very bearish.

China

Shanghai Index monthly:



The monthly chart turned bearish at the end of April and is currently down 6% for the month of May. It is sitting right on a level of previous support at 2639.75 (Sept, 2009 lows). This is an extremely important monthly closing price to watch.

Shanghai Index weekly:

The index on the weekly chart issued a sell signal last week. Price broke below the previous weekly closing price set in Sept, 2009 and all weekly indicators are bearish.

This is a potentially dangerous position as there is no real strong long term support all the way back down to the bear market lows at 1665.


Shanghai Index daily:



The daily chart looks awful. No technical support, no divergent technical indicators, no bottom in sight short term. There is some minor movement in the RSI and Stochastic out of oversold area but not enough to get excited about at this point.


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