The bright spot in the global equity landscape is ex-US. Earlier this year, Europe began trending higher and creating new highs. As a group, ex-US markets are finally trading above rising 50-dma (chart).
The laggard emerging markets are now outperforming the US over the past 10 weeks (chart). The set up for EEM outperformance was discussed here; to this we can add that their valuation relative to book value is highly compelling (chart). Two sympathy plays, the Aussie dollar (chart) and steel (chart), are confirming.
In the US, treasuries, which had outperformed equities by 500bp in August, gave up all those gains this week. Over the past 5 weeks, they are now back to equal performance (chart). Of note, investor positioning on treasuries could not be more lopsided (chart).
The above, on balance, is of course positive for equities on a longer timeframe. Over the next few weeks the key question is whether last week's rise was a B (up) wave in an ABC correction that lasts through September, or the start of a YE rally?
For the broader market, we have previously spelled out what to look for at a washout low (post). Many of these conditions have not yet triggered. Despite weakness in US equities over the past month, allocations to equities (chart and chart) and investors' outlook (chart and chart) have not changed by much. Breadth (chart) and the SPX 13-ema (chart) are also in a short-term bearish configuration. All of this suggests a final C (down) wave is likely to come, but the end of the correction is probably close.
