• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock How To Benefit From a Big Rotation in Asian Markets
Stock

How To Benefit From a Big Rotation in Asian Markets

by June 2, 2023
by June 2, 2023 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

It’s been a while since we discussed international stock markets.

Above is the Relative Rotation Graph that shows the rotation for a group of international stock market indices against $DJW, The Dow Jones Global Index.

Looking at this chart I see two big(ger) rotations that are probably worth tracking and possibly trading.

US vs Europe

The first one is the relationship between the US and Europe. On the chart above the tails for $SPX and $E1DOW are a bit covered by other markets so I highlighted them in the RRG below to better see their current rotations.

After a period of outperformance, the European market(s) have now turned down into the weakening quadrant where the tail stabilized and started to move lower on the JdK RS-Ratio scale. The length of the tail indicates that the loss of relative momentum has been quite powerful so far.

The S&P on the other hand, has rotated from lagging into improving and has recently crossed over into the leading quadrant again. The tail is a little shorter than for $E1DOW and it is closer to the benchmark but that is primarily because of the heavier weight of the US markets in the DJ Global index.

There is still a chance that Europe will curl back up while the US rolls over. Which would essentially mean that the recent rotations have only been a pause in the outperformance of Europe over the US.

However, based on the individual charts for both markets that seems to be the less likely scenario.

USA

The S&P is on its way to breaking above its previous high at the moment which, in itself, is already a good sign. But more importantly, the relative strength line against The DJ Global index is solidly moving higher indicating a relative uptrend against the world.

Europe

The European index, on the other hand, has just bounced off overhead resistance around 380. This has caused the RS-Line to start rolling over which is now pushing the RRG-Lines lower.

Not only from a price perspective is Europe now lagging behind the US but also in relative strength against the world. Both markets are at opposite trajectories, and these sorts of situations always provide good trading opportunities.

A straight comparison between $SPX and $E1DOW on a daily chart highlights the improvement of the US over Europe in even more detail.

Japan vs Hong Kong

The second major rotation that I see on the RRG for world indices is the one between Japan and Hong Kong. These tails are well visible on the RG at the top as they are further away from the benchmark and the clutter of the other markets.

The RRG below zooms in on the rotation between these two Asian markets.

The opposite rotation is clearly visible and the length of the tails indicates the there is quite some power behind both moves.

Three weeks the tails crossed over from left to right and v.v. confirming the change of trend.

Japan

The Japane Nikkei Index is breaking beyond a major overhead resistance level at the moment. It already looks pretty impressive on the chart above, but when we change the chart to monthly and show more history, things are getting even more interesting.

Not only are Japanese stocks pushing to the highest level in more than two years. This break also opens up the way for a test of the all-time high for the Nikkei index. And unlike many other markets, this all-time-high was not set in the last 3-4 years but more than two decades ago.

And also, don’t be fooled by the log scale on this chart. The level of the 1990 peak is around 39.000. From current levels, that means an upside potential of around 25%.

This break also, at the same time, limits the downside risk as the previous horizontal resistance level can now be expected to return as support in case of setbacks.

Hong Kong

How different are things looking for the Hang-Seng index…

This market just convincingly dropped below its previous low, which opened up the way for a further decline toward the 2022 low near 15.000. From current levels, that means around 20% downside while the upside is now capped at the breakout level near 19.000.

How To Play

Exposure to these international stock markets can easily be created through ETFs that are quoted on US exchanges (in USD). Two widely used ETFs are EWJ for Japan and EWH for Hong Kong. As long as you realize that by using an ETF quoted in USD to trade a market that is traded in another currency implies a currency risk in your portfolio, you’ll be fine.

The chart below clearly shows that the price development for EWJ is quite different from $NIKK (which is what EWJ is tracking)

The top chart shows the ratio between $NIKK and EWJ. The lower chart shows the $USDJPY exchange rate. As you can see, that $USDJPY exchange rate pretty much entirely explains the difference between the $NIKK cash index in JPY and EWJ in USD.

The problem with buying EWJ is that you will also get a long position in JPY against USD which is not a preferred position at the moment as USD/JPY has just broken important resistance levels and seems to be underway for a further rise.

So from a portfolio management perspective, this is a force to be aware of as it has a negative effect at the moment.

For EWH, the impact is negligible as the $USDHKD exchange rate is pegged and hardly fluctuates.

As the expected fluctuations in the underlying markets ($NIKK and $HSI) are pretty significant, the potential profit from the directional moves in these stock markets will likely offset the drag from the exchange rate.

Here is the chart of EWJ in the top half and the ratio EWJ:EWH in the bottom half.

#StayAlert, –Julius

You Might Also Like
  • DEFENSE IS ON THE FIELD | GONOGO SHOW APRIL 26, 2024
  • How to Increase Your Win Rate
  • Charting Forward: Opportunities You Can Seize in September
  • Sector Spotlight: Sector Rotation Model All Over the Place
Share
0
FacebookTwitterPinterestWhatsapp

previous post
DeSantis on whether Biden’s up for another four years as president: ‘People can judge that’
next post
Months after Adidas cut ties with Kanye West, Yeezy shoes are back on sale

You may also like

Momentum vs. Price: Is the Stock Market Rally Over?

January 24, 2023

The Best Five Sectors, #11

March 17, 2025

Where to Find Stock Opportunities in Bear Territory

October 27, 2023

TLT Turns the Corner and Starts to Lead

August 9, 2024

The Market’s Contagious Buzz: What About the China/Russian Brah-Fest?

March 23, 2023

Is the Economic Modern Family Ready to Howl?

March 5, 2023

Rate-Sensitive and Big Tech Names Strengthen as Market Breadth Gets...

May 15, 2023

Three Stocks With Post-Earnings Upside Potential

May 2, 2025

Trend Signals and Trailing Stop Examples using XLF and SOXX

March 11, 2023

NASDAQ NOSEDIVES, Down Over 2% At The Close!

October 26, 2023

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout, pulls outlook

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025
    • The Unpredictable Stock Market: How to Make Sense of It

      May 8, 2025
    • AMD CEO calls China a ‘large opportunity’ and warns against strict U.S. chip controls

      May 7, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,630 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,339 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,320 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,302 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,186 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout,...

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    Oil Prices Soar Amid Middle East...

    October 8, 2024

    Silver’s AI Boom: The Next Big...

    July 9, 2024

    Week Ahead: NIFTY Halts At Crucial...

    December 14, 2024
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here