Emerging markets are in the news today because the
iShares MSCI Emerging Market ETF
(NYSEARCA:EEM) is forming a bearish
. This occurs when its 50-day moving average crosses beneath the
longer-term 200-day moving average. As the name would suggest, this
should have bearish consequences.
Two of my favorite technicians both weighed in on the EEM here and
if these guys talk, it pays to listen. I'll talk some about the
Death Cross after we look at what they had to say.
First up, Greg Harmon
the ratio chart of the
(NYSEARCA:SPY) to the EEM is up near potential resistance. In other
words, the EEM could finally start to outperform the SPY after
lagging for months.
Next up, J.C. Parets looked at
of the EEM and determined on a relative basis (like Greg mentioned)
it could be appealing, but on an absolute basis, he just didn't
have a strong opinion. There's nothing wrong with not having a
strong opinion. Remember, you want to swing at the pitch down the
middle of the plate, and according to J.C., it isn't there yet.
Here's the chart he made regarding the ratio chart of the EEM to
SPY. Again, EEM could start to outperform SPY here.
What about the Death Cross, you ask? Well, it sure looks bearish to
The ETF started trading in mid-2003, so starting in 2004, there
have been seven previous times we've seen a Death Cross. The
near-term results two weeks later are very bearish, down 4.08% on
average and higher just once out of seven times. Going out further,
though, things don't get a lot better. One month, three months, and
six months later sport negative returns across the board. Yes, this
is a very simple way to look at things, but this could definitely
be a headwind for the EEM here.
Lastly, we've done studies on Death Crosses before and usually they
are actually bullish. The reason being that once it happens, you've
probably had a lot of poor performance and it is time for a bounce.
Check out the
(INDEXSP:.INX), as it actually does better after a Death Cross than
the anytime average returns. Now the SPX isn't close to a Death
Cross; I just wanted to point this out.
This article by
Ryan Detrick, CMT,
was originally published on
Schaeffer's Investment Research
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