With the caveat that I am very far from the most proficient bear trader around, we note that the short against the EM’s (via EEV) is being covered this morning.
NFTRH/NFTRH+ recommended a bounce to the SMA 50 as a lower risk short entry (I had personally entered sooner) for those interested, and today EEM is getting to a point where I’ve got to take the profit (EEV roughly doubles the percentage). It’s moving too far from the EMA 10, and could be subject to a snap back soon. Cash is my favorite thing right now so it is also by far my most heavily held thing.
In a big picture (monthly charts) look at currencies a month ago, we noted that USD was turning former resistance into support after a minor breakout. We noted the Euro breaking down from its bearish Rising Wedge and the bearish state of the commodity currencies (Canada and Aussie) and the bearish Japanese Yen (negatively mirroring Japan’s stock market). At the end of the segment we noted that “The Rupee sure is volatile for a currency; volatile and bullish.”
Here is the updated chart of the currency that has been so well tended by the exception to the Central Bankers’ rule, Raghuram Rajan, the chief of the RBI. Indeed,
Mr. Volcker, err Mr. Rajan has received much love from Biiwii and NFTRH over the last year or so because he did what he thought was right in the battle against inflation, not what was politically expedient. Rupee holders owe him a debt of gratitude.
Ref: The economist who predicted the financial crisis just sounded another alarm – it would be wise to listen this time
Combined with Narendra Modi’s pro-business, pro-investment orientation India now seems poised as a leader going forward. We track the Bombay Sensex (flying around way up in blue sky territory) in a casual way each week in NFTRH, but upon the next global market correction India may be a place to park new funds.
For further views on the subject, Wisdom Tree discusses it’s views of India and how it manages its India Earnings Index, which is an area I will be interested in upon any new buying opportunities.
The thing about India is that it tended to its currency first and then its asset markets. In other words, the Indian RBI Chief and Prime Minister each have their agendas in play and it is all because Rajan refused to follow the CB herd and instead, did the right thing. I just like the India story, if that is not overly evident by now.
While the EM’s still look okay by daily chart (series of higher highs and higher lows) they are starting to break down in SPY units (bottom panel). It looks like a little bear flag formed at the SMA 50. Those rooting against the US but cheering for other areas may be disappointed.
Here is a bigger picture view like those NFTRH has been following for months now. There is a lot of resistance up there.
Guest Post by Elliott Wave International
Why the Nifty and many other emerging market stocks screamed “Buy!” three months ago
From Elliott Wave International’s February Asian-Pacific Financial Forecast (published Feb. 7):
…Bloomberg reports that “more than $7 billion flowed from ETFs investing in developing-nation assets in January, the most since the securities were created.” Such massive selling…supports our view that emerging markets are ending large-degree three-wave declines.
Conventional observers are asking the question, “Is this 1997 all over again?” (The Economist)
The way we see it, the return of such headlines in January supports another significant low now — from a contrarian perspective.
There has been a shift underway (improbably against a stronger US dollar and muted inflation concerns) in the Emerging Markets vs. the US stock market. The top panel shows the Emerging Markets ETF breaking out on a daily chart. In the lower panel is EEM vs. SPY for reference. The ratio has done this before in its bear market, but there it is anyway.
I am fiddling around with chart styles as I am getting a little bored with the plain white ones lately.
I have been as bearish as the next guy on the EM’s, mostly owing to long term charts. But we have been watching for a bounce and today the Emerging Market ETF (EEM) is breaking above a well defined lateral resistance line. That’s it, just a quick FYI. Hey, after all those long-winded posts…
I was short the EM’s but botched up the trade on a whipsaw just before EEM broke support for good. Hey, it happens. When EEM hit the measured target of 37 I took a long trade on the EMF fund. A modest profit was taken there, and per an NFTRH update yesterday I took a new bear position (EEV) at the high (on EEM, low on EEV). Risk on the trade is controlled by the respective resistance and support lines.
Guest Post by Doug Noland
The evolving EM crisis took a turn for the worse.
Backdrops conductive to crises can drag on for so long – sometimes seemingly forever – as if they’re moving in ultra-slow motion. Invariably, they lull most to sleep. Better yet, such environments even work to embolden the optimists. This is especially the case when policy measures are aggressively employed along the way, repeatedly holding the forces of crisis at bay. In the face of mounting risk, heightened risk-taking and leveraging often work only to exacerbate underlying fragilities. But eventually a critical juncture arrives where newfound momentum has things unwinding at a more frenetic pace. It is the nature of such things that most everyone gets caught totally unprepared.
The Emerging Markets ETF has continued down to confirm a break of support. And yes, I shorted the EM’s (per an NFTRH Update) a few moments after making the previous post noting the breakdown a few days ago. The target remains 37(ish).
Last year the Templeton Emerging Markets bond fund provided great gains. Now Templeton’s Mark Mobius has provided excellent 9% and 7% returns (Plus dividend income) on what are essentially mutual funds. I don’t want to get greedy.
I am still constructive on the Emerging Markets and Asia compared to US markets, but it is time to pare back on some positions now and evaluate. I still hold the Templeton Global Income fund, which is +5% since purchase and spitting off monthly income.