Leaving the downdraft of 2018 behind, it seems to be a good time to consider the year ahead.
One of the things I am noticing is the EEM ETF made a higher low compared to the developed world ETF. This chart shows the price of the EEM emerging market ETF in the top panel holding up better than the VEU ETF.
Knowing that one emerging market chart is improving in relative strength is ok, but the EEM chart is clearly in a downtrend.
One of the indicators that can help find strength in the market is the StockCharts Technical Ranking tool. It ranks the price action of a ticker symbol against a basket of similar stocks. We can also use it to find strength by comparing ETF’s. It can be plotted as an indicator.
Using the list of the strongest ETF’s, it helps to find what is holding up. Below is a minimum volatility emerging market ETF (EEMV). The momentum indicator (PPO) is trying to turn up while near zero. Momentum usually has to start improving before price improves. This is a welcome sign and we can see the December wave on the PPO broke above all the previous tops since the market high. This suggests a potential change in the momentum from the trend we have seen. With the recent volume increase, it suggests we are not alone in our interest for this chart. While the overall market is very volatile here, this might be a good chart to watch. Notice the SCTR ranking I described above has moved into the top 25%. That is a good level to monitor for strength.
The second chart that looks great related to emerging markets is the Brazil Small Cap ETF. The volume is a little light on this so small position size is important. It might also be best to use it as an indicator of emerging market strength rather than actually trading it. The stock closed the year just breaking the down sloping trend line. The PPO is curling up above zero which is similar to the example above. Notice the SCTR shows the ETF behaving as one of the top ETF’s in the market (99.3 %). This suggests the relative price action is good. It does not guarantee that the stock will continue, but usually strong relative performance attracts investors. If the price takes out $14.75, it will be new 6-month highs. Tough to find US index ETF’s at 6 month highs right now.
Here is the general Brazil ETF. Brazil was one of the top performing markets in the fourth quarter. This short little wedge is a nice consolidation pattern. A topside breakout would suggest a move measuring to the highs seen on the chart. Once again, the relative strength in purple is at new six-month highs and the SCTR suggests strong performance. The PPO is turning up right at the zero level.
Those are some examples of emerging market charts. Keep hunting as I think it sets up well if the US Dollar keep rolling over.