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.
The EEM Emerging Markets ETF broke out of a triangle several weeks ago and is now bumped up against resistance. If (IF) it can clear current resistance, it loads a target of 52.
Almost as if to honor the memory of Jonathan – my Emerging Markets guru – the EM’s are breaking out. This chart, along with others in the emerging world have been diverging from bearish stock market activity for quite a while now.