NASDAQ Composite Index (NASD.I) & iShares MSCI Japan Index Fund (EWJ)
World markets have spent another week stuck in stagnation struggling to settle on a direction. Just as fears about US regional banks faded, up popped concerns about US debt ceiling negotiations to spark swings in sentiment from day to day. Soft retail sales and industrial production numbers out of China didn’t help matters but a somewhat encouraging start to retailer earnings season appears to be.
While the majority of equity indices have ended up flat on the week, the NASDAQ has continued to climb, indicating continuing interest in the Technology and Communications sectors. In International Equity action, the Japanese market has taken off this week while other major overseas indices paused. Crude Oil, Gold and Copper have been very choppy switching back and forth between rallying and retreating almost from day to day.
We have entered into what has historically been one of the two softer and more volatile times of the year for equity market trading which runs through to early July. Economic news for the coming week is dominated by North American housing market numbers, plus Flash PMI reports from around the world on Tuesday.
It’s the last big week for earnings reports for the quarter. Results from US retailers continue to roll out, headlined by Walmart today and continuing with specialty and mid-tier names like Best Buy and Gap in the coming days.
Perhaps more significantly the five largest Canadian banks are set to report results next Wednesday and Thursday. This time around, investors may focus on the banks’ exposure to the US market particularly since TD recently walked away from a planned US acquisition. Any comments on how rising interest rates have impacted business and the economy now that we are over a year in to the current hiking cycle may also attract attention.
In this edition of Equity Leaders Weekly, we look at how the NASDAQ Composite and the Japanese stock market as examples of increasing interest in selected US sectors and growing breadth in international equity markets.
NASDAQ Composite Index (NASD.I)
Looking at market indices can tell investors quite a bit about equity market trends and changing sentiment. It is important for investors to remember that a significant component of index returns can be based on size or sector composition. The NASDAQ Composite (NASD.I), for example, is known to have a higher sensitivity to growth/technology/communications stocks compared with the broad-based S&P 500, the value sensitive Dow Industrials, or the resource sensitive S&P/TSX Composite.
NASD.I started to stabilize last fall after declining through most of 2022, and finally bottomed out in a Bear Trap bottom in December where it broke down by one row then reversed sharply upward. A winter rebound that snapped a downtrend line was followed by a brief correction in March and in recent weeks, the NASDAQ has resumed its upward course.
Benefitting from relative strength in the Technology sector, NASD.I has broken out to the upside this month, completing a bullish Triple Top pattern to signal the start of a new upleg. Initial upside resistance may appear near 13,035 based on a horizontal count, then 13,700 based on a previous column high and 14,540 based on a vertical count. Initial support appears near 11,915 based on a 3-box reversal.
iShares MSCI Japan Index Fund (EWJ)
International Equity has been the top ranked asset class in the SIA Charts Asset Class Rankings since December. For most of this time, the relative outperformance of International Equity has primarily come from European markets.
In recent weeks, strength in International Equity has started to broaden out geographically, particularly into Latin America (ILF) led by Mexico (EWW), and also to Asia Pacific where performance had lagged due to China’s uneven reopening.
The iShares Japan Index Fund (EWJ) had staged an initial rebound between November and February but then paused for two months to consolidate its initial gains. In recent weeks, EWJ has started to climb once again, snapping a downtrend line and completing bullish Double Top and Spread Double Top breakouts.
Next potential upside resistance for EWJ appears in the $64.75 to $66.05 zone where vertical and horizontal counts and previous column lows cluster. Initial support appears near $58.05 based on a 3-box reversal.
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