In this week’s technical market update, we are seeing a distinct “divergence” in the global markets.
While many investors focus exclusively on the S&P 500, our technical indicators—specifically MACD (Moving Average Convergence/Divergence) and Moneyflow—are telling a different story. The momentum is shifting, and for the first time in a while, the leadership is moving away from US Large Caps and toward Emerging Markets and Energy.
The technical picture for Emerging Markets (EEM) is showing positive confirmation of a new upward trend.
Unlike the domestic market, the daily and weekly charts for EEM are aligning perfectly. Both the MACD and Moneyflow indicators are confirming price movement, suggesting this rally has legs. The trend looks healthy, and we believe this creates a compelling opportunity for diversification.
In contrast to the strength overseas, the US Large Cap market (SPY) does not look as healthy under the hood.
We are seeing a negative divergence. While prices have remained high, the momentum indicators (MACD and Moneyflow) are not confirming the move. Historically, when price goes up but participation goes down, it is a warning sign. This “non-confirmation” suggests that the US market may be tired and prone to a pullback.
Finally, we are watching the Energy Sector (XLE) closely. The index has recently broken out of a medium-term trading range. We view this technical breakout as a positive sign for the sector, potentially offering a hedge if broader US volatility increases.
This chart is showing positive confirmation of the upward trend in emerging markets when looking at MACD and Moneyflow.
The weekly chart is matching up with the daily chart shown above. The trend in emerging markets looks healthy.
Unlike Emerging Markets, the large cap US equity market (SPY) doesn’t look as healthy. Here you can see the move is not being confirmed with MACD and Moneyflow. Instead this divergence can be a cautionary signal.
MACD and moneyflow are not confirming the move higher in SPY.
The energy index (XLE) has recently broken out of its medium term trading range. We see this as a positive sign for that market.
The “easy trade” of just buying the S&P 500 may be fading. Now is the time for tactical asset allocation.
Schedule a call with our team to ensure your portfolio is positioned to capture these new trends in Energy and Emerging Markets.
