This week’s opening blog post is dedicated to a more wide-ranging overview of the global financial markets. This purpose of this analysis is to take a broader view of several key indices in order to reaffirm current trends or assess new opportunities. Without further preamble, let’s dive in…

Large Cap Stocks

The summer volatility and subsequent autumn recovery has run its course in the stock market. Furthermore, we have now entered a new phase of weakness in the broad-based SPDR S&P 500 ETF (SPY) that is likely causing some anxiety for the bulls who are counting on a Santa Claus rally to finish in the black.

SPY is virtually flat on a year-to-date basis and is now back below its 200-day moving average after briefly peeking above it in October. More importantly, this long-term moving average is now flattening and has proven to be a less reliable indicator of stock direction over the last several months.

This recent weakness in November may just be stocks working off some of their overbought steam and setting up for a strong close to the year. Several breadth and sentiment indicators are now back to an oversold state that would appear to favor additional upside in the near-term. However, it’s worth noting that just because a stock index “appears” oversold doesn’t mean it can’t go down further.

Those that are looking to position their portfolio for another shot higher may be rewarded in the small cap arena, which has shown greater historical strength during this time of the year.

International Stocks

International stocks have been somewhat lost in the shuffle over the last several months as the home-bias shifted to the weakness in the U.S. markets. Nevertheless, the well-known iShares MSCI EAFE ETF (EFA) will be in focus this week in the wake of the horrific terrorist attacks overseas.

The recovery in EFA fell well short of expectations and the current trend remains in favor of weakness at the moment. This index was unable to recover back to its 200-day moving average and is now below even its short-term trend lines. The quantitative easing efforts in both Europe and Asia don’t appear to be making much of an impact on enthusiasm for international stocks as well.