The moves forecasted by the COT signals make them very adaptable to commodity based ETFs, writes And...
How Will Dubai World Affect Emerging Markets?
12/02/2009 12:01 am EST
In the aftermath of last week's Dubai World market decline, let's take a look at the weekly chart of the iShares MSCI Emerging Markets ETF (EEM) to see the recovery and current important level to watch going forward.
After falling from its 2007 peak of $53 per share to $17.50 a year later, the most popular, highest-volume emerging markets ETF has recovered around 65% of its decline and is up 65% for the year 2009 so far, after having doubled from $20 to $40 following its March 2009 lows.
Structurally, price is above the 61.8% Fibonacci retracement near $40 per share, and the $40 level remains a critical price zone to watch for clues about expectation of highs yet to come, or an expected retracement ahead.
The $40 level also reflects the "price polarity" principle of support and resistance (see early 2008).
Should price break under $40, there would be the potential for confluence support at the $36 to $37 level from the 50% retracement and convergence of weekly moving averages.
The fly in the ointment-as is the case with many major market indexes currently-is the persistent negative momentum divergence that has formed through the latter half of 2009. It's a non-confirmation of price, but it is not reason alone to run for the hills and short sell here, especially as long as price remains above the $40 level.
Let's drop down to see the daily time frame.
Again, we see the $40 level as being important, as it is the zone between the 20- and 50-day exponential moving average, and price is (currently) supporting at that level.
Unlike other major market ETFs like the SPY or DIA, we are not necessarily seeing distinct negative volume divergences in EEM. Volume has remained steady around the 75 million daily range, with the exception of major outflows in November.
So the Dubai World scare could not bring the EEM meaningfully under the $40 level-that alone is bullish.
The daily chart does show us the lengthy negative momentum divergence that is showing up on other US market ETFs since the May period going forward. It's something to watch, but in powerful uptrends, we rely more on moving averages than insights from momentum.
Keep watching the EEM for a benchmark of broad emerging markets and chart developments that may arise.
By Corey Rosenbloom of AfraidToTrade.com
Related Articles on ETFS
The WisdomTree Europe Hedged Equity Fund (HEDJ) is an exchange-traded fund that provides investors w...
Funds that stick to a specific style make good core holdings — they establish your asset alloc...
The S&P 500 SPDR (SPY) has eked out a new high this week, notes Marvin Appel...