Is The Stock Market Uptrend Losing Momentum?
The stock market opened in positive territory Thursday but was burning off the gains in afternoon trade as investors digested the potential impact on the economy of the fiscal cliff deal and proposed spending cuts on the U.S. economy and as the Federal Reserve considers ending its massive monthly bond purchases this year.
In afternoon trade, theSPDR S&P 500 ( SPY ) shed 0.16% to 145.83.
PowerShares QQQ ( QQQ ), tracking the 100 largest nonfinancial stocks on the Nasdaq, fell 0.27% to 67.02.
SPDR Dow Jones Industrial Average ( DIA ) gave back 0.10% to 133.64.
The SPY and DIA are 1% off their 52-week peaks. The lagging QQQ is trading 4% below its 52-week high. All three are trading above their 50- and 200-day moving averages, indicating a strong uptrend.
The stock market may be rising, but the momentum is waning, creating a negative divergence that implies a correction lies ahead, Louise Yamada Technical Research Advisors of New York warned clients in its January 2013 report.
"The Dow, the S&P 500 (and the NYSE) are still addressing formidable resistance of the 2007 high and may need more work before lifting through," Yamada's report stated. "The anticipated four-year cycle decline is turning down but need not come into play immediately and could extend into late 2013 or into 2014, allowing for the Fed's liquidity to infinity to impact our equity markets favorably . ..
"We should note that the positive effect of this reiterated Fed liquidity policy at year-end 2012 appeared not to have positively affected gold or U.S. long Treasury rates as has been the case in the past, leaving an open question as to whether the Fed policy is losing potency. A reason for caution?"
The firm seems big money starting to rotate into industrials, basic materials and financials.
IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, fell 0.82% to 57.27.
IShares MSCI Emerging Markets Index ( EEM ) dropped 0.36% to 45.06.
Vanguard FTSE All-World ex-US ETF (VEU) shed 0.65% to 46.19.
All three are trading near their 52-week highs, indicating they're in solid uptrends.
Emerging markets appear to have started outperforming developed markets at least in the short term and the U.S. stock market has started to lag the world, according to the Yamada.
"The SPY carried a lesser 2011 decline, and moved into a new uptrend through 2012," Yamada's report stated. "But the world markets (both VEU and EEM) consolidated for two years in what we would technically consider a repair period for their more extensive absolute price declines."
The report added that institutional money is moving into foreign markets: "As we enter 2013, technically, a directional divergence may be developing. The EEM and the VEU are lifting to breakout through the recent consolidation, achieving new reaction highs, while the SPY appears to be not only failing to lift to new highs, thus far, but also appears set up to possibly put in place a lower high, diverging negatively from the world (both developed and emerging markets)."
Carl Delfeld, managing director of Chartwell Partners, based in Denver, and founder of PacificRimConfidential.com, recommends ETF investors dump last year's winners in favor of the laggards, such asiShares MSCI Brazil Index (EWZ) andMarket Vectors Russia ETF (RSX), which ended 2012 down 1.3% and 6%, respectively. He also recommendsiPath DJ-UBS Coffee ETN (JO), which dripped 43% in 2013 thanks to a bumper crop in Brazil.
"What the weather will be like in Brazil in 2013 is beyond me, but I do know that demand for coffee is steadily rising throughout the world," Delfeld wrote in an article on his website. "Today, Japan's per capita coffee consumption is 75% of America and still trending upwards.
"From 1980 to 1995, coffee consumption in Japan was up 300% and in South Korea a stunning 1,800%. Taiwan's coffee consumption has quadrupled over just the past four years. "Then there is China, a country that is at a very early stage of this promising trajectory of growth."
Follow Trang Ho on Twitter @TrangHoETFs .