Emerging Markets have born the brunt of a market environment that is a bit uneasy. That should not be a big surprise as uncertainty in major markets should result in a risk off mode at the fringes. I continue to see the US economy as strong and US markets poised for more upside, but not until the news cycle changes. The media seems to love anything to do with tariffs and potential trade wars. And not just in the US. This has resulted in the US markets being shocked occasionally and stalled in their climb.
For Emerging Markets it has been much worse. A steady plunge since the quick bounce following the the January high. The last 5 days have accelerated that move to the downside though, and brought the price of the Emerging Markets ETF, iShares MSCI Emerging Markets (NYSE:EEM), to a troubling area. The chart below shows the fall from the top. it also shows the move this week through the long time support and resistance area. This has acted as support since it broke above it and retested it in September last year.
Now with Emerging Markets falling through support is it the end of the ride? There are many things in the chart to consider. First is the Death Cross, the 50 day SMA falling down through the 200 day SMA. This bearish signal happened in early June with the price already below the 200 day SMA, also a bearish sign. Momentum has also shifted from neutral to bearish with the RSI now on the verge of oversold territory and the MACD negative and moving lower.
But there are also signs that the worst may end soon, at least for now. There is that shift to being oversold looming. There is also the move outside of the Bollinger Bands®. And the last 3 days with gap moves lower, often a signal of exhaustion. It looks horrible but is just closing in on a 38.2% retracement of the move higher form the 2016 low. That would happen at a price of about 42.75. Certainly there has been some major damage, but a stall and reversal here could be a major opportunity for Emerging Market investors.
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