International Market Breadth vs US Market Breadth

In several prior articles, we have explored US stock market breadth as one component of overall market condition and adverse implications for future market direction ( Dec 14, Nov 23, Sep 28, Aug 11, July 30, and times in between).

The breadth observations are not stand alone indicators, and other factors should be taken into consideration (such as the currently supportive yield curve, the currently non-supportive operating fundamentals, such as the negative profits and profit margin picture; but also make reasonable forward judgements about prospective changes to those factors, and your own investment time horizon and short-term risk tolerance).

This article is a quick summary comparison of stock market breadth in selected international markets versus the US.

  • US small-cap breadth is worse than US large-cap breadth
  • US large-cap breadth is poor
  • Europe, Japan and the UK have better market breadth than the US
  • China has very bad market breadth, but signs of possible breadth bottoming
  • The Middle-East is a train wreck

Breadth for US S&P Market-Cap Indexes

You can see by examining the “% in Bear” row (the % of index constituents that are in a Bear or worse condition) that the smaller the size of the market-cap, the worse the condition of the constituents.  The same is true when you examine the “Median % Off High” (the % by with the median stock is below its 12-month trailing high price).

In each case, the median stock is significantly farther below its high than the index is below its high (by about 6.5% to about 11%).

These are all signs of sub-surface trouble with the US indexes.

On the positive side,  the percent of small-cap stocks above their 10-day average is significantly higher than for the large-cap stocks, suggesting some possible nascent recovery.

The other three measures (the % of constituents with the tip of the 200-day average  moving up; the % with the price above the 200-day average; and the % rising, defined as both the tip pointing up and the price above the average), are roughly equivalent  for all the market-cap level indexes.

(click images to enlarge)
2015-12-19_US by Mkt Cap.pmg

Breadth for Total US Stocks versus Selected International Indexes

Looking at the “% in Bear” data, we see that Europe, Japan and UK are in better shape than the US; but that China, Australia and the combined Middle-East indexes are in worse shape.  The Middle-East indexes, are in terrible shape on both a relative and absolute basis, with almost 88% in a Bear condition.

The UK is in the best shape according to the % of constituents within 2% of their trailing 1-year high price, and the Middle-East is in the worst shape, with nearly zero near their high.

When it comes to the median stock % off its high versus the index % off the high, the UK differs from the US and the other international indexes. The median stock is actually closer to its high than the index overall. That suggests the UK index is more balanced in its performance composition, and that the index breadth is positive.

Note that for breadth, the largest constituents can decline to match the median stock (a falling market); or the median stock can rise to match the largest stocks (a strengthening market); or the two can converge by the median rising while the largest stocks decline (uncertain implication).

Even though China has a huge number of stocks in Bear condition, there are signs of a breadth bottoming process.  Unlike the other indexes with about 21% to 37% “Rising” (moving average Tip Up, and price above moving average), China has about 63% rising.  The Middle East is no where near stabilizing with only about 5% rising.

The UK “% Rising” is about the same as the US, but Europe and the Japan are in significantly better shape.

2015-12=19 International

These data (definitely not the only data you should rely upon) suggest that you should avoid Middle East markets, consider Europe, UK and Japan if you want to diversify outside of the US; and perhaps nibble at China if other data support the evidence of bottoming possibly shows in this data.

Here are relative performance charts for the US market-cap indexes versus the SPDR S&P 500 ETF; and international indexes versus the Vanguard/CRSP US Total Market.  The data is dividend adjusted price data from StockCharts.com.

US Market-Cap Indexes

  • US Mega-Cap (OEF)
  • US Large-Cap (SPY)
  • US Mid-Cap (MDY)
  • US Small-Cap (IJR)

2015-12-19_US breadth

Major International Indexes

  • Europe (VGK)
  • United Kingdom (EWU)
  • Australia (EWA)
  • China (GXC)

2015-12-19_ITL breadth

Middle-East Indexes

  • Gulf States (GULF)
  • UAE (UAE)
  • Qatar (QAT)

The Middle-East markets are tiny, but as they are in the general war zone today and are important oil exporters, they are an interesting set to observe.  There is no suggestion that they are appropriate for most persons, but they may be interesting to watch.

 

2015-12-19_ME breadth

 

Saudi Arabia Index

  • Saudi Arabia (KSA)

The Saudi ETF has only a few months of existence, since the market just opened to the outside, but because it is the largest Middle-East market, and because is it the most important oil exporting country in the midst of the historical oil supply war, and the Sunni/Shia war, we thought is would be an interesting market to observe.

2015-12-19_KSA breadth

 

Disclosure:  We have positions only in SPY among the securities mentioned in this article.

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