Emerging Market Fund (EEM) Turns the corner against NasdaqIntroduction
Since the 2008 Financial Crisis NDX has been “the” trade for anyone looking for easy gains in equities. It has stomped out precious metals, emerging markets and the like. Even crypto powerhouses like Bitcoin and Ethereum are sideways against NDX since the 2018 crypto bear market and smaller alts have been clobbered against NDX in the most recent bear market.
Against all this we now have the Emerging Market ETF, EEM, turning technical corners against NDX on the monthly time frame. This idea is more of an investing idea rather than a day or swing trade idea. And it point to finding entries into EEM.
Main Chart
The main chart has a very simple draw. It takes a bearish fib draw from the all time high to the bull trap low. The gavel shows where price returned to the 1 line and previous support was turned into resistance. From there the pair bear market began in earnest.
Price consolidated for about 3 years on the 2.618 level before continuing downward. That leve is also confirmed by the VPVR. We see similar levels of consolidation at the 3.618 an 4.0 level. Price is currently just bounced of the 4.618. Conceivably price could go and hit a 5.0 extension with the divergence indicators showing bullishness n the monthly chart I don’t see that being a likely scenario.
Divergence Primer
Normal Divergence (Trend Reversal)
Bearish: Higher highs on price action but lower highs on the indicator
Bullish: Lower lows on price action but higher lows on the indicator
Hidden (Trend Continuation)
Bearish: Lower high on the price action and higher highs on the indicator
Bullish: Higher low on the price action and a lower low on the indicator
Divergence Indicators
The RSI, Stochastic and Stochastic RSI are some of the first indicators traders learn about when they begin to trade. There is a lot of value one can get out of their use by mastering the fundamentals rather than running off for more esoteric indicators. The Logrithmic MACD is a advanced look at the MACD that can be useful whenever you look at a underlying asset that is best viewed logarithmically for its charting and targeting.
Relative Strength Index
A very simple indicator for looking for divergences. The chart clearly shows that there have been 2020 we have had two lower lows on price action but two higher highs on the RSI. This is clearly normal bullish divergence and suggest a trend reversal is coming. Even more importantly the RSI has climbed its way above the key level of 25 on this most recent bounce. One of the main things I am looking for is a swing low with hidden bullish divergence. A buy of a low with hidden bullish divergence is one of my most preferred buys for trades and investments.
Stoch RSI
The Stoch RSI is derived from from the RSI and helps confirm any divergences on the RSI. Seeing bullish divergence on the Stoch RSI helps confirm the fact that price action is turning the corner and ready to reverse. This indicator will be useful when combined with the EEM chart to help buy pull backs. It will also be useful to see any further bullish divergences.
Log MACD
The log MACD is undulating below zero Despite any bullish divergence we see we can know we are a long way away from seeing an impulse move upward on EEM/NDX while the LMACD is below zero. If we see the LMCAD with bullish divergences above zero then we can know that the move will be a lot more impulsive. As it stands, this is still time to accumulate EEM against NDX.
EEM
EEM has hidden bearish divergence on the 2020 C19 low to the low of October 2022. I am going to be looking for another low shortly to see what divergences can be seen. I hope to buy in against or below the monthly BB.
Another look with fewer indicators and some ambitious trend lines.
Conclusion
There is a lot of noise about financial resets and that can mean a lot of different things. For me, nothing totally resets but there are transition periods of major rotations. With emerging markets so low against the NASDAQ it seems likely they will benefit from rotation as people sell something that is overvalued (NDX Stocks, other US equities) and try to move into things that are comparatively undervalued.
A look at EEM is looking for a investment that can be held perhaps for decades or until some young’un wants to retire. There is probably a lot of consolidation and accumulation that needs to occur before any big move happens. But when it starts to move it should be quite impulsive for a index. But for now, lots of basing out and dip buying.
