Quant Mapping Emerging Markets via iShares ETF ($EEM)
The iShares MSCI Emerging Markets Index fund tracks the MSCI index of the same name and gives exposure to a diverse range of emerging market stocks – the fund particulars can be found here.
Given Bernanke’s testimony lacking the QE bath salts many had been anticipating, we decided to continue mapping some potential targets on our shopping list and why not start with an EM focus given their susceptibility to slowing western demand.
The only real concern in this ETF are the Chinese Bank stocks however the weighting is not over the top when offset with the likes of Samsung and Gazprom. Both enjoy strength in their respective markets whether due to innovation or artificial trade barriers is neither here nor there …..
This map is a simple one because quite frankly the chart is too. The only technicals I would pay attention to pertain to the move higher from the 2008/09 low. Below are the bull and bear points of interest.
Of particular note are the 33% accumulation/participation Dow Theory line and its proximity to current price (just below). A move sub 36 would see this ETF move into accumulation and very likely draw larger players from the sidelines as risk profiles start looking too good to refuse.
The other is a simple fib retracement across the 2008/09 low to 2011 high noting failure to even close below the 50% level and now nesting above the 38.2% area. A retest of the 50% level would look like a fat pitch and by year end the nett 1.45 yield on this instrument will likely pale compared to it’s growth potential should QE arrive later this year.
Along the model base level 1 (red horizontal) you can see a quite prominent Head and Shoulders pattern with quite good symmetry in terms of time and price. We don’t tend to try and pick animals out of the clouds which many pattern chasers do a lot of the time however as this is on a weekly time-frame it deserves at least a cursory glance.
Volume showed that buyers came in on the first level 1 test at the June lows however this would need to support again and ideally in greater size to warrant some real confidence to the buy side. Conversely the narrow rising trading range of the past month or so off the lows may well be viewed by many as a bearish flag of sorts suggesting in extension that the systemic risk profile of the macro model may in fact be in play.
The numbers stack up and with this ETF having the potential to nurse near term sell offs on further QE disappointment we may well see one of those long opportunities that surprises to the upside.