obv is the average price data, the closing price is the point data dispersed along different points on time line
Emerging Markets Face Key Test
Wall Street seems to be turning bullish on emerging markets, but the chart action for one of the primary emerging markets ETFs shows that there’s still cause for concern.
Inflation fears have dampened the interest in many of the emerging markets over the past few months. Many investors have also moved to lower risk in their portfolios as we approach the end of QE2.
A recent report from Birinyi Associates detailed how the major Wall Street firms feel about emerging markets. Their analysis showed that the outlook for many of the markets—including China, Malaysia, Singapore, Thailand, Turkey, and Brazil—had improved from earlier in the year. Brazil was the most favored market.
Up Next: An in-depth look at two country-specific ETFs will be posted at 1 pm ET
Over the years, I have often found that my opinion has been quite different from that of the big Wall Street firms, and as a result, the almost unanimous bullish outlook for Brazil has me concerned.
I have been closely following the action in the emerging markets, and my volume analysis for several of the emerging market ETFs suggests that the action throughout the next week or two will be critical. The improved technical outlook for the US stock market should be supportive for the emerging markets.
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Chart Analysis: The widely watched iShares MSCI Emerging Markets Index Fund (EEM) had dropped down to retest its breakout level (line a) in mid-April before making marginal new highs in early May at $50.43.
- The correction from the highs has been very sharp, as the April lows have been broken with a low this week of $46.40
- The weekly uptrend, line b, has now been reached with major support at $44.25
- The weekly on-balance volume (OBV) did not confirm the May highs, as it formed a negative divergence, line c. The OBV is now trying to turn up from support at line d
- The daily OBV (not shown) does look much better, but is just a bit below its weighted moving average (WMA)
- There is short-term resistance now at $48-$48.50 and a close above $49 will suggest that the correction is over
The WisdomTree Emerging Markets Equity Income Index (DEM) looks better than EEM technically, and many find its current 3% yield quite appealing. DEM made new highs in early May at $64.86, but it has now pulled back to support in the $60-$61 area (line e).
- The rising 40-week moving average (MA) is at $58.22 with major chart support now at $54.50-$55.50 (line f)
- The weekly OBV failed to confirm the recent highs, as it formed lower highs, line g, before plunging back to its long-term uptrend
- Clearly, the selling at the highs was quite heavy, which is not a positive sign. The daily OBV (not shown) is negative
- Initial resistance stands at $63.50, and this level needs to be overcome to suggest that the correction is over
