Questionable euphoria in U.S. stock markets on Friday aided the
BRICS emerging markets to aggressively about face and claim
[caption id="attachment_72052" align="alignright" width="300"
caption="Inside the New York Stock Exchange"]
Friday sent some U.S. markets to highs not seen in more than
four years. The SPDR S&P 500 Index Trust (
) closed at $144.33, the highest close for the ETF since January 3,
2008 when it closed at $144.86.
EEM, the iShares MSCI Emerging Markets Index ETF (
) that largely tracks the BRICS, followed suit and jumped to a 2.3%
The six month chart above suggests that a breakout
has occurred, possibly leading to the initiation of an uptrend
while terminating the consolidation pattern which had been
developing since the lows achieved in early summer.
The one year chart suggests the same possibility dating back to
the lows of October 2011. This is wonderful, if in fact the
optimistic outlook is justified and sustainable. Looking at
the component BRICS countries we see that all achieved gains on
Friday but the charts tell different stories.
Brazil, represented by the iShares MSCI Brazil Index ETF (
), also broke out on Friday and bested EEM with a 2.79% gain that
day. And while the six month chart suggests a breakout in line with
EEM, the close on Friday was the highest close since August 20,
2012. Hardly a significant achievement. We'll take the gains but
questions surrounding Brazil's economy will continue to be a drag
on EWZ's price appreciation.
The Market Vectors Russia ETF Trust (
), has a better story to tell. It gained 2.99% Friday but also
breached an important threshold, closing at the highest level since
May 3, 2012. This is the day before the ETF gapped down to
accelerate the selling on its way to the ultimate lows of the year.
A gap higher while exceeding an important milestone such as this is
a good trading indicator.
The WisdomTree India Earnings Fund (
) had a notable 2.21% gain Friday, but unlike the other ETFs failed
to breach any significant levels. At best it seems to be continuing
the price consolidation in which all the BRICS have been
Fittingly China comes last. Represented by the iShares
FTSE/Xinhua China 25 Index ETF (
), it had a very nice 2.84% gain Friday, but has been performing so
miserably that the gain had no effect at all on the chart or the
FXI seems to still be consolidating but the range is so wide --
with Friday's close in the middle of it, that its direction is
difficult to call.
Despite the similarities and differences between the BRICS' ETF
performance, correlation is still high and will remain the most
influential factor. The U.S. unemployment rate improved this week,
with new unemployment claims lower, but this was largely due to a
reduction in the workforce. An illusory improvement coupled with
the Fed's willingness to manufacture currency can in the short run
drive stocks higher, but not permanently.
Despite the celebrations as the S&P 500 and other U.S.
indexes reach multi-year highs, the reality is that none of these
gains will remain until the economy in the U.S. can improve without
intervention. Like many I will enjoy these gains but for the time
being will prepare for an eventual giveback.