EFA - Look for H&S Building

Glewis54 Updated   
A review of EFA shows a slight break below a perceived neckline with stochastics indicating that further downside is possible. When reviewing EFA versus SPX, EFA is performing better. I'll attach that chart below. While SPX might outperform EFA over the next week or two, the SPX/EFA chart looks toppy and in an diversified asset allocation format, EFA or foreign stocks may outperform the US stocks going forward.

While that is a good possibility, it's wise to keep one's eye on the EFA pattern as it could be forming a head and shoulders topping formation signaling significant downside to come. The revelation of the head and shoulders formation may give one an opportunity to pare back a foreign stock position and move to a more favorable allocation whether it be cash, bonds, precious metals or so forth.

I had been underweighted in foreign stocks as the world has flocked to US equities. Will have to keep an eye on the dollar as interest rates dramatically plummet. Continued lower interest rates can be a game changer to US equities with dollar sensitive positions such as precious metals, bonds and even some emerging market equities might be more favorable. Will add more as the investigations continue.
Gold continues to outperform S&P as this chart illustrates. Overall, public and institutional participation in precious metals investments has been small, probably due to the limited size of this market. Any institutional move to precious metals will result in significant outperformance - precious metals over stocks.


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