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Our premature call on buying EEM vs. SPY

By: Emerging Money
Posted: 1/25/2013 12:45:00 PM
Referenced Stocks:

We were early -- which means wrong, on buying the spread of owning emerging markets equities vs. the S&P 500.

[caption id="attachment_72052" align="alignright" width="300" caption="Inside the New York Stock Exchange"] Image courtesy José Maria Silveira Neto: http://www.flickr.com/people/silveiraneto/ [/caption]

This trade is carried out by buying the iShares MSCI Emerging Markets Index ETF ( EEM , quote ) and shorting the SPDR S&P 500 ( SPY , quote ). Last week we said this spread looked interesting to re-enter. While we were off in our timing on this spread trade, we were right to clearly state to take profits overall in EEM two weeks ago.

As we looked at the spread trade, the view was that the correction looked overdone at the .2975 level. We are now .2935 and looking at the 200 day moving average at .2918 as a place to take a shot.

This will be a 50% retracement of the high move of the spread off the low set before the European Central Bank (ECB) meeting in September.

See the chart below. Even more enticing might be the 18 RSI on a 9d.