Are Emerging Markets Finally Ready to ‘Emerge’?
When Will they ‘Emerge’?
You don’t have to look too far to see someone suggesting that emerging markets are a good buy at current levels. I get it. There is certainly a valid case to be made from a fundamental and valuation perspective.
However, that argument has been made for the last couple of months and EEM has gone from $50 to $43….a 14% decline. I have always maintained that valuation/macro analysis is only ONE part of the trade selection process. Adding technical and quantitative analysis can often add a level of insight that makes for more robust entries.
Here is a little secret: you cannot get emerging markets to move higher while the US dollar is moving higher. The two are inversely correlated.
The chart below shows this clearly. Please note that the overlay of the Dollar Index (DXY) is inverted.
My overall forecast now calls for a resumption of the downtrend in the Dollar Index (DXY) that began back in January 2017. The recent rally off the February 2018 lows was merely a correction.
If correct, then EEM is in a really sweet spot to embark a sustained rally higher. Note the chart below:
- Wave (4) looking to find Fibonacci Support at $43’ish
- Clearly defined stop-loss level at $38.31
- Upside target from a technical perspective seen at $58-$60
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Current Open Trades
FX: EUR/USD, GBP/USD and AUD/USD
Stocks/Options: IQ, SPY Call Spread, USO, SC
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