ASMLF - IXUS: Keep An Eye On This International Stocks ETF (Technical Analysis)

Summary

• If the US economy is going to slow down, let your money work for you internationally.
• My technical analysis framework based on Trend Flow, Support/Resistance Location, and False Breakout Traps suggests a hold outlook IXUS currently, but I am on the watch for bullish reversals.
• Signs of inflation peaking out in Japan and the UK will be incremental catalysts for IXUS to bottom out and start a new uptrend.

If this is your first time reading a Hunting Alpha article using Technical Analysis, you may want to read this post , which explains how and why I read the charts the way I do, utilizing principles of Flow, Location, and Trap.

Introduction

The US stock markets have outperformed most of the international stock markets for more than a decade now. However, with an inverted yield curve and recession talks abound in the US, it may be nearing time for your money to take flight and find yield somewhere else. I am keeping a close eye on international ETFs, waiting for appropriate triggers to materialize before I enter. One of the ones on my shopping list is...

IXUS; A Low-Cost ETF for International Equity

The iShares Core MSCI Total International Stock ETF ( IXUS ) tracks a weighted index of global stocks, composed of large-cap, mid-cap, and small-cap equities outside the US. Here's my read of this ETF vs the S&P 500 Index ( SP500 ). It has a low expense ratio of just 0.07% .

Read of Relative Money Flow

The IXUS/S&P500 pair is slowing down its descent and looks ready to consolidate sideways for a while. The pair is currently retesting the lower monthly resistance, where buyers might feel tempted to come on board in hopes of driving prices higher. Incrementally, it may show a buildup to a sharp bull trap and a bearish resumption lower. However, until evidence of this trap is seen, there are no valid moves for me to make.

Thus, I am adopting a "hold" stance until a trap is confirmed. The incumbent flow and trend are downwards, but I anticipate a reversal in the works.

Read of Absolute Money Flow

On the standalone IXUS monthly chart, the price is currently retreating from the $60.22 monthly resistance after a failed attempt to scale through. This comes amid a lack of bullish conviction to halt the bearish descent from its $71.84 all-time high recorded in September 2021.

I would not be surprised if we see the current price of $57.98 to the $53.54 support in H1 2023. But overall, I suspect the price will be range bound for a few months.

IXUS ETF Composition

In many countries, the largest sector exposure is usually found in banks and financials. This is because banks and financials are always in need of more capital and have long growth runways, making them attractive havens for large, long-term investments. The IXUS ETF's largest exposure is also in Financials:

In terms of geographical exposure...

Japan and the United Kingdom make up almost 25% of the overall. Another observation is that IXUS is predominantly a developed markets-focused index (Japan, United Kingdom, Canada, France, Switzerland, Australia, Germany, and Taiwan make up 59.5% of the overall ETF's exposure). This characteristic makes it a little less prone to USD dollar ( DXY ) fluctuations that is often a major driver of risk and volatility in the emerging market indices.

In terms of the top 5 holdings...

The top 5 companies on the IXUS ETF are Taiwan Semiconductor Manufacturing Company Limited ( TSM ), Nestle S.A. ( NSRGF ) ( NSRGY ), Tencent ( TCEHY ) ( TCTZF ), ASML Holding ( ASML ) ( ASMLF ), and Roche Holding ( RHHBY ) ( RHHBF ). These are large, well-known names.

The top 5 holdings make up only 5.3% of the overall index. Interestingly, the top 2 geographies are not present in the list of the top 5 holdings. Nor are the top 3 sectors (financials, industrials, and consumer discretionary) present in the top 5 holdings. This indicates a very well-diversified portfolio.

Key Fundamental Drivers to Track

Given almost 25% exposure to Japan and the UK, I am monitoring key macro drivers in these economies to identify fundamental triggers for IXUS to print a confirmed bottom or initiate a new uptrend. One key factor I note is that inflation in these countries is yet to peak:

Japan's Inflation Situation

In November 2022, reports showed that the annual inflation rate in Japan had climbed a little further to 3.8%. On the surface, a 3.8% figure might seem harmless, especially as many other countries had it worse. However, the relatively small figure was monumental for Japan, considering it is the first time since 1991 that the nation has recorded such high inflation figures.

Given that inflation is cooling-off in other parts of the world, such as the US and China, Japan may follow a similar path. And when this happens, it would be incrementally bullish for Japanese equities, especially since almost 23% of the Nikkei 225 is exposed to industrials and manufacturing. These sectors get hit hard by rising costs in an inflationary setting. By the way, I have done an analysis on EWJ ( EWJ ), a Japanese ETF here .

UK's Inflation Situation

The UK's inflation rate is 10.7%, its highest figure since 1981. Similar to Japan, we are yet to see signs of it peaking out. However, when this happens, it would be an incremental benefit for the UK stock market and hence for IXUS.

By the way, my most promising stock idea as of late is UK Defense stock BAE Systems ( BAESF ), ( BAESY ). My analysis on this company won Seeking Alpha's Top Idea award. Check it out here .

Summary

The US stock markets have been a great place to be, relatively speaking. But things may be changing now at the margin. For example, in my previous analysis, I have discussed how I believe the UAE ( UAE ) and China ( MCHI ) are relatively better places for my capital.

A broader basket of international ETFs may join this list of relative outperformers vs the S&P500. With some signs of inflation peaking out in Japan and the UK, IXUS may also join my list of international stock market buys. Until then, however, I am keeping this on watch and hold.

For further details see: