All-World ETFs Signal Downtrend for Foreign Stocks

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (ETF Expert) -- Foreign stocks returned to their winning ways in the first 10 weeks of 2012. By mid-March, however, economic data out of China started to demonstrate sluggishness. A rapid rise in Spanish bond yields began threatening the country’s ability to manage its own finances. And European interbank lending ground to a halt.

Nevertheless, as recently as Tuesday, May 1, many commentators were giddy about U.S. stock gains. After all, the Dow had just hit a peak not seen since December of 2007.

Perhaps ironically, the U.S. stock market finished the first week of May with its worst showing of the year. The Dow Industrials Trust (DIA) gave up -1.5%, the S&P 500 SPDR Trust (SPY) slid -2.4% and the Apple-powered PowerShares NASDAQ 100 (QQQQ) plummeted -3.8%.

Most of the news outlets are blaming weak U.S. employment data for April. Yet unemployment claims had fallen to a one-year low just a day earlier. Should the media really blame deceleration in U.S hiring alone? What about the “sell in May and go away” phenomenon? Or could it be the basic desire to realize profits after a spectacular seven-month run?

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In truth, it may simply be too far-fetched to think that U.S. stocks can completely decouple from the rest of the world’s markets. The idea that the iShares MSCI Spain (EWP) fund could notch a 52-week low at the same time that the Dow Industrials Trust could register a 52-week high flies in the face of previous risk rallies. The same can be said for the simultaneous success of the iShares 7-10 Year Treasury Bond Fund (IEF).

So what should you do next? Cut-n-run? Hold-n-hope?

The good news is… your decisions do not need to come from a place of raw emotion. For example, my colleague Rob Charette recently brought a lesser-known technical trading term to my attention; specifically, an investor can quantify the direction of a trend by determining its slope. A positive slope expresses an uptrend whereas a negative slope describes a downtrend.

If we apply the mathematical construct of slope to Vanguard Total U.S. Market (VTI) for a 50-day period, we see that the uptrend remains intact. (See the chart below.) Of course, a positive reading of .02 isn’t exactly a ringing endorsement, but it is a near-term uptrend nonetheless.

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