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Beware of Emerging Markets


China isn't a safe haven.

Editor's Note: This article was written by Richard Suttmeier, chief market strategist at, a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

Don't Listen to the Advice to Invest in Emerging Markets

All I've been hearing from strategists is advice to invest in emerging markets, including China. They say that developing countries will lead the US economic and the global recovery. I disagree.

The iShares Emerging Markets Index Fund (EEM) has a negative daily chart. This week's support is $39.90 with the 50-day and 21-day simple moving averages at $40.66 and $41.12. The weekly chart for the fund shifts to negative this week with a close below the five-week modified moving average at $40.32. This would target annual support at $36.14. Investors should bring the cash home to the stronger dollar.

The iShares China 25 Fund (FXI) has a weaker daily chart than the emerging markets fund. This ETF is below its weekly pivot at $42.50 and well below the 21-day and 50-day simple moving averages, which are crossing into negative territory at $43.81 and $44.00. The weekly chart stays negative on a weekly close below the five-week modified moving average at $42.88. The 200-week simple moving average is at $38.21.

Yesterday a Chinese official said that their demand for US Treasuries will suffer as the US buys fewer Chinese good. That sounds like an economic warning for China.

The yield on the 30-Year Bond is at the highest level since August 10. Note that declines in yields failed at the 200-day simple moving average as resistance in early October and on November 27 and this resistance is now 4.21. My semiannual support is 4.75, which puts a drag on equity valuations.

This morning, nine of 11 sectors are Overvalued according to ValuEngine, which has been a warning that stocks will see limited upside relative to downside from current levels.

The most overvalued sectors are Basic Industries and Energy, which are vulnerable to a stronger dollar. The cheapest sector is Health Care, which is under the cloud of Health Care Reform.
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No positions in stocks mentioned.

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