Death Cross Descends on Emerging Markets in What May be a Contrarian Signal

MarketInsite Stocks Graphic

Wednesday, June 6, 2018, 10:15 AM, EST

  • NASDAQ Composite +0.11%Dow +0.41%S&P 500+0.12%Russell 2000+0.16%
  • NASDAQ Advancers:1243Decliners:769
  • Today’s Volume (vs. yesterday)-3.25%

U.S. equity markets are flat to higher to start the day, keeping pace with the rest of the world as macro headlines and Italian politics move the markets. Trading volumes are traditionally light following the Memorial Day holiday. Currently 6 of the 11 S&P 500 sectors are trading higher with Financials and Energy the best performing sectors while Utilities and Consumer Staples underperform. Crude oil is lower while and Gold trade higher. The dollar is also lower while the yield on the 10-yr has increased to 2.9589. The probability of the FOMC raising interest rate at their June meeting next week now stands at 100%.

  • Trading volumes continue to normalize while the major indexes make all-time highs. The Nasdaq Composite and Russell 2000 made new all-time intraday highs today, while the other indexes are within a stone throw of their all-time highs made earlier this year. The VIX (or fear index) continues to trends lower, now trading at 12.5 handle after posting a 37 handle back in February. A lower VIX is a positive sign for investors as market fears and thus volatility decline. YTD average daily trading volumes on the consolidated tape in the U.S have declined from 8.3 billion shares a day in February when the VIX peaked at 37 while to 6.6 billion shares a day in May. So far in June, volumes on the consolidated tape are averaging even less at only 5.3 billion shares while the VIX averages 12.40. The correlation between the VIX and trading volumes is clear, with increased volatility, market volumes uptick…
  • The G7 summit in Canada continues where leaders were likely to discuss the global economy and concerns about U.S. trade policy. The G7 is a group consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. These countries represent the 7 largest advanced economies in the world. President Trump is due to attend this week, with a likely discussions on the tariffs, look for headlines from these meetings that may roil the markets.
  • Friday, FTSE Russell will release its preliminary list of addition and deletions from its widely followed Russell family of Indexes. This list will be updated on Friday June 15th and the newly reconstituted indexes will take effect on Friday, June 22nd after the close. With the increase of passive and index investing, elevated trading is expected at the close and in the afterhours on the 22nd are expected. The Russell rebalance has historically become one of the highest volume trading days of the year, thus showing the increased importance of these indexes as an investment thesis.
  • On June 6, 1944, during World War II the Allies invade Western Europe. Codenamed Operation Neptune and often referred to as D-Day, it was the largest amphibious attack in history. The Battle of Normandy, which lasted from June 1944 to August 1944, resulted in the Allied liberation of Western Europe from Nazi Germany’s control. Casualties on both side that day were estimated to be between 15,000-19,000 soldiers.

Technical Take:Death Cross Descends on Emerging Markets in What May be a Contrarian Signal

Emerging markets have not been immune to the corrective price action seen in US equities in 2018. As the Nasdaq and smaller cap Russell indices have made fresh YTD highs this week, the Dow Jones is barely positive, the SPX is more than 4% from its highs, and seven of eleven GICS sectors, including financials, are in the red YTD. The emerging markets ETF, ticker EEM, is down 0.5% YTD, however it is coming off a 34.6% gain in 2017 which marked its best year since 2009. From a technical perspective the YTD performance can be fairly viewed as healthy corrective price which now may be close to resolution. During the 2017 uptrend, the 50-day sma acted as clearly defined support on numerous occasions; and not unexpectedly has been resistance throughout the 2018 correction (see white arrows). The 50-day is now death crossing down below the 200-day moving average, traditionally seen as a bearish signal, however it can often coincide as an intermediate low in an otherwise larger uptrend. In fact a breakout above these two moving averages may signal just that. At the very least the averages provide a clearly defined price level for new longs to measure risk. Greater support is just below at $45.

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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