EEM Emerging Markets ETF Daily Chart; Death Cross; Cyclical Bear Market

During August, the doom and gloom around emerging markets was at fever pitch. Traders opined daily that emerging market stocks have no where to go but down. When sentiment moves heavily in one direction, your radar goes up that an opportunity is developing.

Sure enough, the green lines show the oversold conditions and positive divergence that launched price off the bottom 3 weeks ago. The lower band was violated so the middle band was in play which price tagged and then went on to gap higher to the upper band violation. Price now may relax to the middle band again at 39.7-ish. The green lines show long and strong chart indicators so further higher highs in prices are likely. Stochastics are overbot so that may create a day or two of sogginess but the other parameters should provide continued buoyancy to EEM. The RSI is above 50% in bull territory.

The death cross is shown in the black circle with the 50-day MA stabbing down through the 200-day MA. Death crosses are one of the most misunderstood patterns in technical analysis. The business media love to tout death crosses since it is dramatic and it attracts eyeballs which boosts ratings and allows them to bring in more ad revenue. Everything that occurs around you is always about money. People become animated when they describe a death cross waving their arms frantically while proclaiming the end of the world is nigh.

In actuality, when a death cross occurs, price typically rallies and the above chart shows this as would be expected. This is why some people will pooh-pooh technical analysis citing that price is actually rallying with the death cross. These folks simply do not understand technical analysis. A bounce usually occurs after a death cross because it takes a lot of time and effort to roll the 50 over so it travels downwards to stab the 200. After all that time, price is ready to at least take a dead-cat bounce. Going forward, the death cross tells you that prices will remain weak with a downward bias as long as the death cross is maintained (the near-term rally does not matter). By definition, the 50-day will begin to curl back upwards if price can move above 41.33 and higher.The golden cross occurred in early March (gold circle).

Note the slope of the 150-day MA is now negative a signal that emerging markets have slipped into a cyclical (weeks and months) bear market starting in August. EEM will remain weak and heading lower on the intermediate term basis, as long as the 150 continues sloping lower and the death cross is maintained.

The EEM weekly chart is chopping along sideways using the 50-week MA at 41.07 as resistance and the 200-week MA at 38.93 as support. If 38.93 fails, goodnight Irene, Irene goodnight. Conversely, emerging market bulls will throw a party if 41.07 is taken out to the upside. Price will chop along as noise between 39 and 41. Keystone is not in this play. The time to go long was the second week of August as described above; the chart told you what was going to happen. A short may be considered at 41-ish depending on how the next few days and week or two play out. 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.