EEM Emerging Markets Weekly Chart; Bear Market; Positive Divergence Developing

EEM, the Emerging Markets ETF, slips into a bear market. EEM topped out at 52.08 on 1/26/08 and is now at 41.55 which is a -20.2% collapse this year. A -10% drop off a top is considered a correction and a -20% is a bear market.

Television pundits are jumping into EEM with both hands declaring that a bottom is in and surely it cannot fall any further. Perhaps they may be right but the weak and bleak MACD line hints that price will likely come down again for a lower low after a bounce occurs on the weekly basis.

The green lines show positive divergence as price makes a lower low. The RSI, histogram, stochastics and money flow would like to see a bounce in the weekly time frame. The stoch's are also coming off oversold levels agreeable to a bounce. However, the RSI never reached oversold territory and the MACD line is weak and bleak wanting to see another lower low. The expectation would be for a bounce for a week or two but then price will likely come back down for another lower low to satisfy the MACD line and perhaps bring the RSI down to the oversold territory.

Price has violated the lower band so the middle band at 44.50 is on the table when price decides to put a substantive rally together. It is probably best to give it a couple weeks to play out further but place it on your list for potential long plays.

In the very short term, the daily and 2-hour charts point to the near-term bounce right now so there is likely about a 3% or 4% pop for the days ahead but be very nimble since it will likely roll over again as explained. Keystone is not in EEM now but may buy it as the week begins and ride the little pop and then exit quickly. If you are not a nimble trader, simply wait for a couple weeks and see if price comes down further as explained here that will lead to the more substantive bounce on the weekly basis.

There is lots of congestion at 40-41 from last year, 2015 and 2014 (blue circles) so price may want to play in this area as all these investors rethink their EEM positions. Interestingly, the green falling wedge, a bullish pattern, may form nicely in this 40-41 area as well which would be a further indication of a rally at hand.

For you budding chart technicians, you can see the brown inverted head and shoulders pattern that formed in 2015 and 2016. Note the possie d across all indicators as 2016 began, and oversold RSI and stoch's, that told you to go long. Also of interest is the orange cup and handle (C&H) pattern pointing to a rally ahead. Both patterns have a base at 27-ish and breakout line at 34-ish which targets the 41 level which was achieved and that is where price hesitated creating the blue circle consolidation area.

For all C&H patterns, as a rule of thumb, there are three places where a long trade can be entered. You can enter on the breakout (above 34), or when the price comes down for the expected back kiss of the breakout line (at 34-ish), or when price breaks above the initial highs after the breakout occurred (above 36). This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.