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The Charts Signal Profits for Both Bulls and Bears


Technicals for emerging markets, the dollar, and semiconductors show excellent risk/reward opportunities.


The Bear Case

Chart No. 1 - The MSCI Emerging Markets Index (EEM) is clearly forming a head & shoulders top. Emerging markets stocks are inversely correlated to the US dollar, so the dollar's strength should improve as global investors seek haven in "safe assets" like the US Treasuries and the US dollar.

Chart No. 2 - The US Dollar Index has clearly bottomed and is currently forming a wedge pattern. This is a very bullish consolidation pattern; a breakout from this should see the US Dollar Index reaching a price target of $100, spelling bad news for emerging market stocks in the process.

Chart No. 3 -- Direxion Emerging Market Bear 3X (EDZ) is the most efficient and profitable way to short emerging markets. It is an inverse ETF that profits when The MSCI Emerging Markets Index falls. The chart of the EDZ below confirms the head & shoulders pattern on The MSCI Emerging Markets Index. This ETF could easily rise 50% or more this summer if the dollar continues to strengthen.

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The Bull Case

Chart No. 4 - The Direxion Daily Semiconductor ETF (SOXL), the Direxion Daily Semiconductor Bull 3X shares, is the best leveraged ETF "long chart" from a risk/reward perspective. I am using the leveraged ETF chart here because this ETF is very liquid and mirrors the Semiconductor Index (^SOX) perfectly.

SOXL is signaling two strong technical factors. First, it clearly bounced off a double bottom support in June of this year. Second, it has recently formed a very bullish "island reversal pattern" which signals that there has been an immediate trend reversal, and it has been bullish.

The real promising aspect of the chart is the excellent risk/reward opportunity it presents by placing a stop around $23, which if reached would signify a failure of the island reversal. You are risking $2.40 on the downside to potentially make $20 on the upside.

A retest of this ETF's recent high at $46 is very likely on any significant market rally, because semiconductor stocks are very volatile and offer highly leveraged plays on rallies with a limited downside. A retest of the high would be 75% gain from here.

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For more information on which specific leveraged ETFs are the best to trade, backtested and proven highly profitable trading strategies, daily trading ideas based on macro and market news, or money management, please contact Global Investor Monthly.
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