An Emerging Issue

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As you can see on the daily chart of the EEM (ETF for the emerging markets) above, we are increasingly seeing charts that appear to have made clean breakouts, only to give it all up and then some. In the case of the EEM, specifically, the emerging markets broke out above a well-defined area of resistance and then pulled back to consolidate. This appeared to be a classic case of prior resistance turning into current support, which we know is bullish.

However, we are starting to see many charts give up these breakout points. On the one hand, the temptation is to declare this to be an automatically bearish event. In the very short-term, if you could have shorted these failed breakouts for a quick trade, then you would have been rewarded for your bravery (or recklessness). Going forward, though, the picture is increasingly nebulous. These charts are far from being in established downtrends. In my estimation, they simply need more time to firm up. Clearly, they were not ready to hold these breakouts for now, which means stepping off of the gas pedal is appropriate.

Note also a similar situation with the SIL, ETF for the silver miners.

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