Getting Technical
MONDAY, JUNE 10, 2013
Emerging Markets Send Worrisome Signal
By MICHAEL KAHN
The lousy performance of emerging market indexes not only bodes ill for those stocks, it could foreshadow pain for U.S. equities.
Last week, when stocks rallied as Treasury bonds and the U.S dollar declined, it seemed that investors were once again interested in riskier assets. But as the Dow Jones Industrial Average jumped 207 points Friday, many emerging markets exchange-traded funds (ETFs) declined.
For investors connecting the dots, it was a sign that risk-taking was not really back in vogue. For global stock markets, it suggests that the bear is still lurking.
Even if we set aside markets that have geopolitical issues driving down stock prices, such as Turkey and South Africa, emerging markets have lagged behind the Dow all year. The iShares MSCI Emerging Markets Index Fund (ticker: EEM) shows not only a bearish trend relative to the Dow but also a decline and breakdown in absolute terms (see Chart 1).
![[image]](http://barrons.wsj.net/public/resources/images/ON-BB196_bGTCht_NS_20130610155950.jpg)
In January, the ETF failed in its attempt to break out above resistance set by its March 2012 peak. In technical analysis, the failure of a bullish event usually becomes a bearish warning, and indeed prices slid from around $45 to $41 — nearly 9% — in just three months' time. In comparison, the Dow gained 1,300 points over that period.
Following an April-May rebound, the ETF broke down hard on May 22 – the day U.S. markets notched a key reversal (see Getting Technical, "Charts Show Speed Bump Ahead for Stocks," May 22) – and has been in near free-fall ever since. It is now below its April low and a rising trendline drawn from October 2011. Recall that global markets made a sharp reversal to the upside at that time as the Fed announced its "Operation Twist" stimulus plan.
In 2009, the ETF bottomed with the U.S market. In 2013, the ETF fell to pieces on U.S. news that was shrugged off by U.S. stocks, albeit for just a few days. That is quite different behavior and it bodes poorly.
Even if we set aside markets that have geopolitical issues driving down stock prices, such as Turkey and South Africa, emerging markets have lagged behind the Dow all year. The iShares MSCI Emerging Markets Index Fund (ticker: EEM) shows not only a bearish trend relative to the Dow but also a decline and breakdown in absolute terms (see Chart 1).
Chart 1
ISHARES MSCI EMERGING MARKETS ETF In January, the ETF failed in its attempt to break out above resistance set by its March 2012 peak. In technical analysis, the failure of a bullish event usually becomes a bearish warning, and indeed prices slid from around $45 to $41 — nearly 9% — in just three months' time. In comparison, the Dow gained 1,300 points over that period.
Following an April-May rebound, the ETF broke down hard on May 22 – the day U.S. markets notched a key reversal (see Getting Technical, "Charts Show Speed Bump Ahead for Stocks," May 22) – and has been in near free-fall ever since. It is now below its April low and a rising trendline drawn from October 2011. Recall that global markets made a sharp reversal to the upside at that time as the Fed announced its "Operation Twist" stimulus plan.
In 2009, the ETF bottomed with the U.S market. In 2013, the ETF fell to pieces on U.S. news that was shrugged off by U.S. stocks, albeit for just a few days. That is quite different behavior and it bodes poorly.
Drill down into the components of the emerging-market index, and it's clear the supposed powerhouses of the future are doing no better than the broader group. The "BRIC" countries of Brazil, Russia, India and China are also weak. Last week the iShares MSCI Brazil Capped Index Fund (EWZ) set its lowest weekly close since July 2009 (see Chart 2).
![[image]](http://barrons.wsj.net/public/resources/images/ON-BB197_bGTCht_NS_20130610160015.jpg)
And while the iShares Trust FTSE China 25 Index Fund (FXI) does not directly track China's benchmark Shanghai composite index, both have been falling all year. The former is once again trading below both its 50- and 200-day moving averages.
Other markets in Asia show different and more worrisome chart patterns. Thailand had been a strong performer, and in the 12-month stretch ending in May 2013 the iShares MSCI Thailand Capped Investable Market Index Fund (THD) gained 46%. But this market also fell apart on May 22 and gave up more than 12% in just 10 trading sessions (see Chart 3).
![[image]](http://barrons.wsj.net/public/resources/images/ON-BB198_bGTCHT_NS_20130610160032.jpg)
While Thailand's performance tracked the general direction of the domestic market, it dwarfed the 5% decline in the U.S. and broke chart support from March. Further, Thailand went from a market leader to a market laggard, and has not recovered. Markets in Indonesia and Singapore show similar charts.
In Asia, Latin America, Africa and the Middle East, with some exceptions, markets have been falling all year. While this could be explained by weak commodities prices (many of these markets are commodity exporters) it does not fit with the idea that investors are willing to take on higher levels of risk as they seek higher returns.
Whether this translates into returning weakness in developed markets remains to be seen. It's certainly not an endorsement.
Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.
Chart 2
ISHARES MSCI BRAZIL ETF And while the iShares Trust FTSE China 25 Index Fund (FXI) does not directly track China's benchmark Shanghai composite index, both have been falling all year. The former is once again trading below both its 50- and 200-day moving averages.
Other markets in Asia show different and more worrisome chart patterns. Thailand had been a strong performer, and in the 12-month stretch ending in May 2013 the iShares MSCI Thailand Capped Investable Market Index Fund (THD) gained 46%. But this market also fell apart on May 22 and gave up more than 12% in just 10 trading sessions (see Chart 3).
Chart 3
ISHARES MSCI THAILAND ETF While Thailand's performance tracked the general direction of the domestic market, it dwarfed the 5% decline in the U.S. and broke chart support from March. Further, Thailand went from a market leader to a market laggard, and has not recovered. Markets in Indonesia and Singapore show similar charts.
In Asia, Latin America, Africa and the Middle East, with some exceptions, markets have been falling all year. While this could be explained by weak commodities prices (many of these markets are commodity exporters) it does not fit with the idea that investors are willing to take on higher levels of risk as they seek higher returns.
Whether this translates into returning weakness in developed markets remains to be seen. It's certainly not an endorsement.
Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.
0 comments:
Publicar un comentario