Emerging Markets ETF EEM has done very well over the past year, gaining over 30% – nearly 50% more than the S&P 500 during the same time period. Impressive gain and impressive relative strength compared to the S&P 500.
An important bull-market test looks to be at hand for EEM this week, see chart below.
In 2011, EEM looks to have created a head-and-shoulders top, with the “right shoulder” taking place at line (1). EEM declined for the next 5 years after creating this topping pattern, falling over 40% during that time frame.
In 2015/2016, EEM seems to have created an inverse head-and-shoulders pattern, as a strong rally over the past 18 months has taken place off the lows. The rally took EEM back to test line (1), which was the right shoulder back in 2011. While hitting line (1), a reversal pattern (bearish wick) took place. Since hitting line (1), EEM has declined a small percent, where it finds itself testing 1-year rising channel support at (2).
The trend in EEM remains up and the small decline of late has NOT changed that trend. EEM bulls want/need to see support hold at (2). If it fails to hold, some selling pressure could take place.