Message of the Markets: Don't Buy Much of Anything Yet
Until the emerging markets bottom and we see some stability in currencies, there's too much risk now to make any major buys.
Message of the Markets
Emerging markets are providing leadership -- on the downside.
Click to enlarge
- You know by now that I believe emerging markets to be a critical tell for the global markets. After all, that's supposedly where the growth is now, right?
- The chart above shows the spread ratio of the iShares Emerging Markets ETF (EEM) versus the S&P 500 ETF (SPY). Here are some observations:
- The ratio is clearly in a downtrend right now (red line).
- The ratio broke below horizontal line support and the 100% Fibonacci projection line (yellow boxes) and is now testing that new resistance level.
- There is plenty of room to the downside before the 2008-09 crisis levels are tested.
- Notice that the ratio bottomed in 2008 and started making higher lows almost on a monthly basis from that point on.
- We need to see a pattern of higher lows start to develop now before we can get more optimistic on the prospects for global equities.
The EEM chart broke below the 400-day moving average and is now testing its uptrend line:
Click to enlarge
- Notice in the chart of EEM above that the 400-day moving average has been a pretty good tell for the prospects of the fund. Green boxes show where the average held up as support and the yellow boxes show the breakdowns/re-tests. EEM has convincingly broken down below the 400-day average -- not good!
- The EEM is trading above the long-term uptrend line -- barely, and for now. If that level of support breaks, then we could see another 10% - 15% of downside in a hurry.
- The chart of EEM below shows how the uptrend was actually broken on a daily basis, but EEM recaptured that uptrend line the very next day. A weekly/monthly close below $35.61 will be real bad news for global risk bulls.
Click to enlarge
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter