The breakout has come! In breaking to the upside we now have confirmation of a continuation in the bull trend of the Nasdaq and Dow. We are not surprised (although to be honest a little relieved).
We continue to take our cues as to the direction of the NDX and Dow from emerging market equity indices. Note the strength of EEM and DGS. You don’t buy risky emerging market equities unless you are genuinely bullish. We believe that the true intentions of world equity markets are easily identified by analysis of the behavior of emerging markets rather than developed markets. Note how clear the trend in EEM and DGS appear relative to the NDX and Dow. Also note how the two emerging market ETFs did not make a new low in March………a clear bullish divergence suggesting that world equity markets had reached a long term bottom.
With no loss in upward momentum in emerging markets we conclude that more upside in equity markets (including the Dow and Nasdaq) will be forthcoming.
