Emerging Market ETF At Resistance

Today I want to take a look at the emerging market ETF (EEM). We have seen a rally in EEM alongside most equities, both local and international. Emerging markets have also gotten a boost by some of the positive news out of Europe, which has shown that high tide raises all boats. However, now EEM is up against resistance at $40.60, which it came in contact with back in mid-August. This area was once support for the emerging market ETF back in April before breaking down, as you can see in the chart below.

As we approach the recent short-term high, we must take a look at the ‘health’ of the advance. Turning to our trusty RSI indicator, we see a very slight divergence from price, with the indicator not quite getting to its previous high, although it did get close.

Next up is volume, I’ve put On Balance Volume at the bottom panel of the chart, which simply adds the number of shares traded on positive days and subtracts them on negative days. We can use this indicator to monitor volume flow. I’m seeing a larger negative divergence in volume based on OBV compared to what we are seeing in RSI.

It’s important to recognize the other forces at work here, with the Fed potentially priming the pump for another round of QE, which we’ll find out later today, as well as the increased willingness for more bailouts in Europe. Now these types of events aren’t directly related to the countries that make up EEM, but the ‘risk on’ nature these bailouts and easing induces can make traders throw the negative divergences and resistance out the window and pile into the ETF while trying to increase their allocation to international equities.

I believe much can be found in technical analysis and there may be some downside risk for EEM, but we can’t take our eye off other factors that can have a large impact on the price action of any security, including EEM.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.