I recently posted several charts from around the world that are breaking down.( China , South Korea, Hong Kong, Brazil ). When looking at the Emerging Market ETF $EEM , to my eye it sets up as a low risk / high potential reward short.
The bear case for the Emerging Markets
From a 30,000 ft view on the monthly, EEM is in a bear posture. In the top panel RSI has broken trend; The PPO momentum indicator has an emerging bearish crossover. On the main chart we find price breaking trend support. Looking back over time, you can see how powerful monthly trend changes can be both on the bull side and the bear side.
Zooming in on the weekly chart, note how price has dropped from key support into what I call an “air pocket”. Air pockets are areas of low trading volume when not much price discovery has taken place. Price tends to move quickly in these type of zones.
What I like about this set up is that in addition to the bearish technicals, there is a clear line in the sand to shoot against. In this case, its $45, where the overhead resistance now lies.
Here are my annotated charts if you care to zoom in and take a look.
$EEM Monthly $EEM Weekly
Today I took a position in EEM Dec 21 44 puts . I paid $2.69. My first target is $42 but my eye is on $38. Based on prior history the monthly swing can be a lot more…we’ll just have to take it week by week. My stop is $45.5 on a weekly closing basis.
As a side note, watch the US Dollar if you take the trade. If the Dollar weakens, it would likely hurt the trade. If it strengthens, that will tend to hurt EEM and be beneficial to the trade.
Good Luck; Hope it helps, and see you next time.