What do the NFL and European Central Bank have in common?

hc-patriots-deflating-footballs-0121-20150120While the NFL investigates whether the New England Patriots cheated in last weekend’s AFC Championship win by intentionally deflating 11 of 12 footballs, the European Central Bank is also preoccupied with deflation – the monetary kind. In December consumer prices in the Eurozone fell by 0.2% from 12 months earlier. The deflation is a symptom of Europe’s persistent economic weakness. The fact that prices are falling is putting pressure on the ECB to cut interest rates or  launch a quantitative easing (QE) program.

Tomorrow Wall Street’s eyes will be on ECB Mario Draghi to see if he’ll announce some sort of initiative to boost money supply in an effort to inflate Europe’s economy.  Since an ECB move is widely expected, failure by Draghi & Co. to act (or act enough) could send US stocks lower.

My newsletter’s intermediate-trend timing model for European funds is very close to an intermediate-trend buy signal, but several weeks away from a potential major trend buy signal. Trades are based on Vanguard FTSE Europe (VGK).

 

Benefit of a doubt

Japan looked like the model for economic recovery – until yesterday. On Monday we learned that the world’s third largest economy unexpectedly fell into recession last quarter.  Analysts squarely lay the blame on April’s sales tax hike. The increase in Japan’s consumption tax from 5% to 8% was implemented to help rein in the country’s debt, but it ended up hampering consumer spending which accounts for two-thirds  of that country’s economy.

Blog Nov 18 Japan Inflection Point

The diminished outlook for Japan’s economy is impacting Japanese financial markets. iShares MSCI Japan (EWJ), a $14.8 billion exchange-traded fund which serves as my proxy for the Japanese stock market, is experiencing an intermediate-term momentum tug-of-war (shaded area, top chart).  However, as you can see below EWJ’s major trend is bullish and when viewed in that broader context, odds favor higher prices in the weeks ahead.

Blog Nov 18 Japan Major Trend

My newsletter’s timing model for Japan Funds generated a buy signal on October 31.

 Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. ♦

It’s all about perspective

Europe DailyEurope WeeklyEurope MonthlyThe Dow Industrial Average closed at a record high on Thursday, but across the pond financial markets are singing a different tune. The Eurozone appears headed into another recession and traders are hedging their bets by selling European stocks.

Vanguard FTSE Europe (VGK), a $17.4 billion exchange-traded fund that serves as my proxy for the European stock market, rolled over in June and has fallen 5.3% so far in 2014 (top chart). After such a smooth run-up over the prior 24 months, you can’t really blame investors for taking money off the table (middle chart). Is Europe’s correction temporary? It’s too early to discern if this is the beginning of a European bear market, but the fact that VGK couldn’t take out its 2007 high (bottom chart) is troubling.

My newsletter’s timing model for the European Funds generated a sell signal on July 8.

 Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. ♦