Two Friday’s ago we took at a look at the disappointing emerging markets ETF, in the sense that it had broken out of a well-defined daily chart falling channel only to start losing upside momentum. Perhaps a brief consolidation or even higher low was in order. But I titled the post “Emerging Problems” because I saw an uptick in sell volume as buyers began to lose their grip on the action.
And I also recalled the gold chart from last year, where you can see below that the yellow metal broke out from a well-defined pattern, but then rolled back over (and we know what happened after that). This tends to be a wildly bearish event, as you might imagine, since the market does its level best to trap in every single last bull before pulling the rug out for the true move lower. As last week progressed, we did indeed see the emerging markets continue to weaken.
Now, here is where the tricky part comes in–We have some pretty poor data coming out of China and Russia tonight and we have articles being written probing whether this is the very end of the emerging markets bull run.
So, perhaps this is the final shakeout with all bad news and poor sentiment being priced in before another sharp rally takes the EEM above $45 for a major breakout? Friday’s daily candle on the ETF was a bearish marubozu (strongly bearish candle but possibly indicative of an overdone selling event after a prior sharp down move) piercing through the lower Bollinger Band. Thus, they are quite stretched to the downside here. However, the breakout and rollover remains concerning and, at a minimum, the chart likely needs time to heal, which means risks to bottom-picking remain elevated.
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Chess–
Zoom out on the $EEM chart (weekly/monthly) and you’ll see a symmetrical wedge that began back in 2007/8. This thing’s ready to bust, and I use indicators, which have a bias toward the upside…
Interesting, thanks!