Time for Emerging Markets Stocks (EEM) to Resume Downtrend

Chart of EEM, iShares MSCI Emerging Markets Index Fund ETF
Chart of EEM, iShares MSCI Emerging Markets Index Fund ETF – Source: TradingView

Many individual stocks and ETFs have been lifted in the past few weeks as the overall stock market has rebounded sharply from its late December lows. The December 24th market low served as a tentative bottom, and equity markets have been in recovery mode ever since. Stocks in emerging markets are no exception. The chart above shows EEM, or the iShares MSCI Emerging Markets Index Fund ETF. Since late December, the ETF has rallied along with the overall market. But the technicals are now signaling a potential impending return to the entrenched downtrend for emerging markets.

The EEM ETF

Before we get to the technical aspects of the EEM chart and why we think that the ETF is likely poised to fall, here’s some information on what EEM holds. The current regional exposure breakdown (as of the 1/11/2019 market close) is as follows:

  • Asia – 69.71%
  • Latin America – 11.04%
  • Europe – 9.58%
  • Africa – 6.12%
  • Middle East – 2.03%
  • North America – 1.52%

And here are the top 10 countries represented in the ETF (as of the 1/11/2019 market close):

  • China – 28.50%
  • South Korea – 13.29%
  • Taiwan – 10.99%
  • India – 8.24%
  • Brazil – 7.18%
  • South Africa – 6.07%
  • Russia – 3.69%
  • Mexico – 2.59%
  • Thailand – 2.33%
  • Malaysia – 2.20%

Below are some of its top stock holdings (as of the 1/11/2019 market close):

  • Tencent Holdings Ltd – 4.81%
  • Alibaba Group Holding Ltd – 3.93%
  • Taiwan Semiconductor Manufacturing Co Ltd – 3.53%
  • Samsung Electronics Co Ltd – 3.49%
  • Naspers Ltd – 1.90%
  • China Construction Bank Corp – 1.61%
  • China Mobile Ltd – 1.23%
  • Industrial and Commercial Bank of China Ltd – 1.00%
  • Itau Unibanco Holding SA – 0.98%

Finally, here’s a sector breakdown for EEM (as of the 1/11/2019 market close):

  • Financials – 24.48%
  • Communication Services – 14.13%
  • Information Technology – 13.92%
  • Consumer Discretionary – 10.34%
  • Energy – 8.07%
  • Materials – 7.46%
  • Consumer Staples – 6.57%
  • Industrials – 5.40%
  • Real Estate – 2.84%
  • Health Care – 2.68%
  • Utilities – 2.60%

The Technicals

The underlying trend for EEM is strongly bearish on multiple time frames. The market’s relief rally in recent weeks since late December has brought price back up to the top of two clearly descending linear regression trend channels – both the 200-day and 100-day. Key dynamic resistance has been hit, and the ETF is substantially overbought on indicators like Stochastics, which is beginning to roll-over and turn back to the downside. Price has also reached the top of the 2-standard-deviation upper band of the Bollinger Bands, and upside momentum appears to be exhausting itself. The one-year performance of EEM (as of the 1/11/2019 market close) is a pitiful -16.43%, and the ETF appears poised to resume its entrenched downtrend and continue its poor performance into 2019.

The Technicals Rating

The Technicals gives EEM a bearish rating of 2 (on a scale of 1-10, with ’10’ being the most bullish and ‘1’ being the most bearish). Below are some of the key technicals for EEM, as well as other relevant information, that help paint a strongly bearish picture of the ETF:

  • Price Position vs 200-Day SMA: -5.58% (below) – BEARISH
  • Position vs 50-Day SMA: +2.01% (above) – BULLISH
  • Position vs 20-Day SMA: +3.39% (above) – BULLISH
  • 200-Day Trend Slope (Linear Regression): BEARISH
  • 100-Day Trend Slope (Linear Regression): BEARISH
  • Stochastics (14,3,3) Level: Overbought – BEARISH
  • RSI (14) Level: Near Overbought – BEARISH
  • Position in Bollinger Bands: At Upper Band – BEARISH
  • Market (S&P 500) Long-Term 200-Day Trend: BEARISH
  • Market (S&P 500) Medium-Term 100-Day Trend: BEARISH

Overall The Technicals Rating for EEM: TTTTTTTTTT (2 out of 10) – STRONGLY BEARISH


IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors. 

Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.

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