Apr 3 2014, 12:52pm CDT | by Forbes
The better than expected news on the economy and hopeful jobs numbers pushed the S&P 500 to another record close. Though the Dow Industrials had its highest close of 2014, it is still 0.1% below its all-time high. The analysis of the Dow stocks indicates they are starting to act better and, in the second half of the year, these large-cap, high yield stocks could catch up.
The Stoxx Europe 600 has closed higher for the sixth day in a row, as it has gained 3.7%. The ECB meeting is being watched closely as many are hoping that the low inflation rate will spur another rate cut. Stocks in Asia have also moved higher as the Nikkei 225 hit a three month high on Wednesday. It added another 0.84% in Thursday’s session to close at 15,071. A close above 16,320 will confirm the breaking of its fourteen year downtrend.
In February’s article “Should You Go East or West?” I took a long at both the European and Asian markets. They had rallied sharply from the February lows and I was looking to buy on a pullback. Several of my recommended buy levels were hit on the recent correction, but have these markets really turned the corner? If you are not invested globally, what should you do now?
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Chart Analysis: The Vanguard FTSE Europe (VGK) is a low-cost way to participate in Europe’s growth. It has over 500 stocks with 20% in the top ten holdings. The United Kingdom makes up 32.9%, with approximately 14% in France and Germany. It has a yield of 3.85% and an expense ratio of 0.12%.
The Vanguard FTSE Pacific (VPL) has an expense ratio of 0.12% with 812 stocks. In addition to 56.4% of its holdings in Japan, it has 19.3% in Australia, 11.3% in Korea, 8.9% in Hong Kong, and 3.7% in Singapore. It has a yield of 2.55%.
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The WisdomTree Japan Hedged Equity (DXJ) has 312 stocks and hedges its yen exposure. The ETF has approximately 17% in the consumer cyclical, industrials, and technology. It yields 1.28% and has $11.8 billion in total assets.
The Guggenheim China Small Cap (HAO) has total assets of $236 million with an average volume of 130k, which is a bit thin. It has approximately 270 stocks with an expense ratio of 0.75% and tracks the AlphaShares China Small-Cap Index.
What it Means: It continues to be my view that the US economy will get even stronger as the year progresses and this is also true of the EuroZone. This should be beneficial for the Asian markets, including China.
The recent strength in the emerging markets is an encouraging sign and the depth of the next pullback will be important. Those not long, as previously recommended, should look for a pullback to the 20-day EMA to buy.. Aggressive investors could look to buy Guggenheim China Small Cap (HAO) on a pullback, but be sure to use limit orders.
For the Vanguard FTSE Pacific (VPL) should be 50% long at $57.36 and 50% long at $56.44. Use a stop at $56.18.
For WisdomTree Japan Hedged Equity (DXJ) should be 50% long at $45.06. The recent low was $44.90, so the second buy level at $44.34 was not hit. Use a stop at $44.74.
The order for Wisdom Tree Europe Small-Cap Dividend (DFE) was not filled, but may issue a new recommendation.
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