Last Friday I tweeted a chart that shows the ratio between the iShares Emerging Market ETF (ARCA:EEM) and the S&P 500. I noticed that the ratio was approaching previous support as shown by the red arrows and the blue line, which was an important juncture for emerging-market bulls -- they needed to break that level to keep the music playing.
Plug Pulled
Well it seems the bears pulled the plug as the ratio between emerging markets and the S&P 500 produced a false break as it made an attempt to keep from turning previous support into resistance. At the same time we saw the relationship’s Relative Strength Index (RSI) work off ‘overbought’ status, which was a sign of heavy buying as traders pushed up the relative performance of EEM against SPY.
Going forward I’ll be watching to see if we get another retest of the resistance or to see if the EMs once again under-perform U.S. equities and retest the March low.
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