Sector Scopes Monthly Review & iShares MSCI ACWI ex US Index Fund (ACWX)

Next week is the last big week for business news before things go quiet for 2 over the holidays. In particular, it’s a big week for central banks with five of the biggest banks holding meetings over next Wednesday-Thursday including the Fed, ECB, Swiss National Bank, Bank of England and the Bank of Japan. Considering that the Bank of Canada did nothing yesterday when it had the scope to make a hawkish turn, most of the other central banks appear unlikely to make waves either. If any do something it would likely be the Bank of England who disappointed investors when it did nothing at its last meting.

Although there has been talk of the Fed accelerating its tapering program, this month’s meeting appears unlikely with politicians still haggling over the US debt ceiling with a potential showdown coming about the same time as the Fed meeting on the 15th. A government shutdown was averted last week by a short-term spending bill which kicked that problem off to February.

In this issue of Equity Leaders Weekly, we take our monthly look at Sector Scopes and

investigate recent action in international markets.

The Sector Scopes feature in SIA Charts, found in the Markets – BPI section, provides investors with a snapshot of the bullish percent (percentage of stocks in a group on a bullish charting signal) for 31 industry groups. This provides us not only with a indication of market sentiment at a point in time, but also a visual way to evaluate changes in attitudes and capital flows between groups over time.There has been a dramatic swing in the Sector Scopes over the last month. In mid-November, most of the sectors were clustered on the right-hand side of the table, particularly the three rightmost columns indicating a high bullish percent. This was indicative of an upward-trending, borderline overbought market.

Over the last month, there has been a dramatic shift leftward as stocks corrected and the bullish percent for several groups tumbled. The majority of groups are now in the center-left columns but not the leftmost columns. This is indicative of a neutral to slightly bearish but not oversold market.

Some of the groups with the largest leftward shifts include Energy, Aerospace, Computer Software, Retail/Specialty Retail, and Banks. Construction (particularly homebuilders) has held up well on the right hand side, along with Electronics and Semiconductors.

While the Equity Leaders Weekly mainly focuses on North American indexes and sectors, we also keep an eye on international markets for what they tell us about global breadth and also for how the International Equity asset class may relate to its peers in the SIA Charts Asset Class Rankings and any implications that may have for the SIA Charts Equity Action Calltm.

One broad indicator which we often use for global markets is the MSCI All Country World Index with the excluding US component telling us about Canada and international markets (ACWX). In recent weeks, we have seen North American indices start to retreat, but so far key support levels have held and North American stocks appear to be in a normal pullback correction within continuing sideways or upward trends.

International markets, on the other hand, appear to have come under even more pressure, particularly emerging markets, with India and China leading the way downward. This retreat suggests that investors may be looking to scale back some of their risk exposure in the near term. Developed international markets for the most part have been in correction mode, but Germany has turned decisively downward, perhaps reflecting growing concern about the potential COVID Omicron variant and associated lockdowns on the European economy.

The iShares MSCI ex US Index Fund (ACWX) started 2021 off strong but saw its upward momentum fade into the summer. In recent months, signs of a shift from accumulation to distribution have emerged, particularly this month when the ETF fell back under $55.00. This drop completed a bearish Spread Triple Bottom breakdown and signaled the start of a new downleg.

Previous column lows suggest potential support tests near $53.28 and $52.25. A horizontal count suggests potential support near $50.70, followed by the $50.00 round number. Initial bounce resistance appears near $57.15 based on a 3-box reversal.