Market in a Holding Pattern

The S&P’s ($SPY) stayed in tight range all day, wrapped around $210. This holding pattern that has settled in makes sense if you look at what is going on in the rest of the world.

Japanese and European markets continue to show signs of strength.  EAFE iShares (EFA), which is an index of EU stocks, is trading above its 200-day moving average for the first time since last September. In fact, the $EFA has moved to the upside this year, versus the $SPY by almost a three to one margin in 2015 (6.1% for $EFA versus 1.8% for the $SPX).

We have seen an even more parabolic move in Japan in relation to the US markets, as the Japanese markets near a 15 yr High. This raises questions for investors in the US.

It suggests that investors might want to do more rotating from U.S. to foreign shares. We want to watch this potential rotation to see if we should be making similar adjustments to our stock selection prospects. It also puts us in a position to look to hedge against the ever fluctuating currency market. Possibly using a hedged equity fund like the $DXJ if we start to build exposure in Japan. Well, that will be an interesting topic for future corner blog.

Have a great trading day!