Last Friday’s feature noted the relative improvement within broader international equities within the DALI Asset Class Rankings, driven primarily by an uptick in Latin American equities. Developed markets, primarily from Europe, have carried the leadership baton from a relative strength (RS) perspective within international equities for the better part of two years. The increase in RS for broader international equites within the DALI Asset Class Rankings make it the most improved asset class off recent market lows, but it also brings the top three assets within 13 signals – their closest since late 2023 and poising the Asset Class Rankings for changes and potential emergence of a leader.

While the relative strength picture between the asset classes in DALI is still developing, the point and figure trend charts of broader international equity ETFs, as well as some countries, have rallied to new all-time highs. After shifting back to a positive trend to kick off the month the iShares MSCI EAFE ETF (EFA) rallied to new highs during trading late last week before improving upon those highs during Monday’s trading. This action clears a prior all-time chart high that was established in October 2007. The SPDR MSCI ACWI ex-US ETF (CWI also rallied to a new all-time chart high during trading last week at $31.50, clearing resistance at $30.50 which had been in place for four years. Both EFA and CWI now trade on the verge of overbought territory (>70%) when examining their weekly distribution (OBOS) readings. Along with the two broader international funds, the Invesco Nasdaq Dorsey Wright Developed Markets Momentum ETF (PIZ) rallied to a new all-time high during Tuesday’s trading. Check the Daily Equity Report tomorrow for a deeper dive on PIZ.

Outside of broader international funds like EFA and CWI, country funds like the iShares MSCI Germany ETF (EWG), iShares MSCI Switzerland ETF (EWL), iShares MSCI France ETF (EWQ), and iShares MSCI Canada ETF (EWC), rallied to new all-time chart highs during Monday’s trading. Germany and Canada now reside in overbought territory (OBOS > 70%) and exposure could be considered on a pullback from current highs. Meanwhile, Switzerland and France are still considered to be in actionable territory based on the OBOS readings, but trade well above support on their default charts so exposure on a pullback for either would be prudent.

Germany now maintains a near perfect 5.96 fund score, while Switzerland, Canada, and France each score above 4. Year-to-date, Canada is up just over 9%, while Switzerland and France have rallied more than 19% and Germany is up 30%.

Equity markets have rallied and the VIX has fallen back below 20. While geopolitical tensions and tariff negotiations have simmered, there is still plenty of risk in the market. Outside of moving to cash or changing overall asset allocations, there are other ways to help protect portfolios against a spike in volatility.

The first method would be to use options, primarily puts, to protect against equity market weakness. Puts are useful on individual positions or on broad market ETFs to help hedge against market risk. An added benefit of using puts is that it’s a long volatility instrument. With the VIX declining to more normal levels, buying puts makes much more sense than it did a month ago. For a more in depth look at using ETF options to hedge a portfolio, click here. There are plenty of other option strategies that can be used to protect against further volatility and downside movement in equities. Selling covered calls will bring in premium that acts as downside protection, but it does cap upside. Debit put spreads are a cheaper way to purchase insurance, since some of the cost of buying a closer to the money put is offset by selling a further out of the money put. Regardless, with the VIX back to more normal levels, downside protection via puts is acceptable right now.

Another avenue available is buffered or defined outcome ETFs. While I personally have written about the drawbacks to using buffered ETF products from a buy-and-hold perspective (click here for more), they can be useful in specific situations. The biggest drawback to using buffered ETFs on a long-term basis is permanently capping upside. However, if there are heightened risks of a pullback or market volatility, buffered ETFs offer some downside protection while still being able to participate in some upside. If market conditions clear up further, then moving back into unbuffered market exposure makes sense.

With so many buffered ETF products out there nowadays, it’s important to choose a product that offers the protection desired and still has at least most of its upside potential left. A good series to look at would be the February calendar series as the S&P 500 is back to early February levels. For example, the FT Vest U.S. Equity Deep Buffer ETF (DFEB) and FT Vest U.S. Equity Buffer ETF (FFEB) are roughly back to where their buffers were originally set, so investors should get the expected upside cap and downside buffer as intended. Both DFEB and FFEB use SPY as their reference asset but there are other versions that use QQQ or IWM. Using the correct funds for a specific reference asset and making sure the fund has the expected payoff structure in place when purchasing them is a very important point when implementing buffered ETFs. 

Daily Option Ideas for May 20, 2025