So far I am down over 2% on this trade, and yet I am quite pleased with the position. This is due to the fact that the S&P 500 has dropped by around 7% during the same time, which means that this ETF is still showing excellent relative strength.
In fact, if you observe this next monthly chart of Malaysian stocks versus SPY, you will see what I believe to be a long term trend as well:
Southeast Asian stocks certainly were not an ideal investment in 1997-1998, but have since been showing stronger growth than the S&P 500.
To be clear, I am not concerned as to why this occurring, nor am I concerned how long this trend will last. I am only aware that this is a trend, and that I am willing to go along with the trend for however long it lasts.
Anyway, Malaysian stocks are not the only geographical area that is showing strength; most of Asia is doing much better than American, as the next chart shows:
The above chart is a daily chart showing the Hong Kong iShares against SPY. They too are breaking out to new highs.Although American stocks are showing clear signs of relative weakness, they are not the worst performing market in the world right now. In fact United Kingdom stocks (EWU) are doing slightly worse, and Mexican stocks (EWW) are not fairing any better.
I would like to take this line of thought to the next level, by looking at the best international market (Malaysia) versus the worst international market (Mexico):
As you can observe with the above daily relative strength chart, there is quite a trend going on. Again, to get on board this trend, one would have to buy EWM and short sell EWW.What is interesting is that this trend could be profitable if the markets falls 10% tomorrow or if the markets rise 10% tomorrow, since it is all relative.
