PHLX Oilfield Services Index (OSX.I) & iShares MSCI Taiwan ETF (EWT)

It has been a short, sideways week for equity markets. Stocks fell heading into the holiday weekend and have bounced back a bit to start a new week, but not enough to offset their previous declines, leaving markets essentially in a holding pattern for the moment.

Meanwhile, monthly price reports indicate inflation pressures continue to build, pushing traded interest rates higher and sending the US 10-year treasury note yield (TNX.I) toward 2.90%, its highest level since late 2018. With inflation on the rise, gold, historically seen as a store of value, has been moving up as well, recently taking a run toward $2,000/oz once again.

Earnings season in the US is off to a very mixed start. There have been some high-profile disappointments particularly Netflix, which sent its stock crashing to a 30%+ one day loss, but it did not have a wider impact outside of the content/streaming sector. Numbers out of the US banks have been very mixed, but early reports from other sectors have been promising so far. From here, we move into the heart of earnings season with a flood of results coming from Big Tech, Big Pharma, Big Oil, Big Mining, Big Rail and more big caps. Earnings also start to come out from Canadian companies in the coming days. Headliners include Freeport today, Newmont tomorrow, Microsoft, Alphabet and Canadian National Tuesday, Canadian Pacific and Boeing on Wednesday with even more big names later next week.

In this issue of Equity Leaders Weekly, we consider the wider implications of recent weakness in Taiwan shares and at a breakout in the oilfield service sector.

In issues of the Equity Leaders Weekly earlier this year, we mentioned that crude oil prices have climbed above $100.00/bbl and have been trading at levels last seen in 2014. The PHLX Oilfield Services Index (OSX.I), has been lagging far behind the oil price rally and in March, was trading at around one-third of where it was in 2014.

This month, drilling and oilfield service stocks have started to play catch-up, snapping a long-term downtrend line, breaking out of the range which prevailed for the last year, and completing a bullish Spread Double Top pattern, all combining to signal the start of a new recovery trend. Having also recently cleared a previous peak near $80.00, OSX.I is trading at its highest level since 2019. With a bullish SMAX score of 9, OSX.I is exhibiting strength against the asset classes.

Next potential upside resistance for OSX.I appears near $100.50 where a round number and a horizontal count converge, followed by $113.05 based on a vertical count. Initial support appears near $73.40 based on a 3-box reversal.

Trends in Taiwan equities can provide significant insight into market sentiment and investor confidence as an emerging market which is heavily weighted in semiconductor stocks and with its geographic and economic proximity to China.

The iShares MSCI Taiwan ETF (EWT) soared up out of the March 2020 market bottom propelled by strong interest in technology stocks, doubling by April of 2021. Upward momentum slowed over the remainder of 2021. Since peaking in a bearish Bull Trap back in January, EWT has come under distribution. A downward trend of lower highs has emerged and the ETF has completed a series of bearish patterns including three Double Bottoms plus Spread Double and Spread Triple Bottoms. Factors weighing on EWT at the moment include hesitancy toward emerging markets, a global retreat in chip stocks, and growing concerns over the impact of recent Chinese lockdowns, the potential for conflict between Taiwan and China, and potential supply chain snarls.

Next potential downside support for EWT appears near $56.25 based on previous column lows, followed by $51.95 based on a horizontal count. Initial rebound resistance appears near $60.30 where a 3-box reversal, round number, and recent breakdown point converge. With a bearish SMAX score of 5, EWT is exhibiting weakness relative to the asset classes.