Tuesday, January 26, 2010

Key Price Levels: EEM

Figure 1 is a weekly chart of the i-Shares MSCI Emerging Market Index Fund. This is the third largest ETF in the market with $39 billion of assets.

Figure 1. EEM/ weekly

Before breaking down EEM, let me set up the chart. The pink labeled price bars are negative divergence bars between price and an oscillator that measures price, and as we know, a cluster of these negative divergence bars is consistent with waning price momentum. The red dots are key price points, which are points where buying and selling are most likely to take place.

The first technical tidbit is the clustering of negative divergence bars leading to a market top. A close above the highs of these negative divergence bars suggested a blow off or an acceleration in price, but this breakout has turned into a nasty fake out.

The second technical tidbit to notice is the failed breakout; see the oval on the price chart. At the end of 2009, prices broke above the 41.30 price level and out of the down sloping trend channel. Over the last two weeks, prices have reversed sharply such that we are back within the trend channel and back below support at 41.30. Support now becomes resistance (which is at 41.30). On the downside, look for EEM to firm up at the next level of support, which comes in around $37. This also happens to coincide with a rising 40 week moving average.


D-man said...


Do you expect a strong bounce when price meets the 40 week MA?


Guy M. Lerner said...

I don't have any clue....but one would expect the 40 week MA or 200 d MA to provide an area of support; plus if prices get down there I would expect sentiment to be turning a bit more bearish (i.e., bull signal)

I guess the question you are asking is what kind of bounce will we see once sentiment turns bearish (i.e., bull signal)? If we bounce, it will be playable and profitable; if market doesn't bounce and it rolls over, then I would watch out below; failures tend to lead to quick losses

Anonymous said...

EEM leads the S&P. The EEM large move was the House setting things up for the drop - this was not a mistaken tic.