After a 4% rally in one week and an 8.5% rally from the first week of February lows emerging market equities are a technical sell at key resistance but are in the early stages of what we feel is a bear market rally.
With $40.00 on the EEM (quote)as your conduit to trade EM is a defined sell level and a place we have guided investors to sell upside through March (expiry) due to heavy technical resistance here that goes all the way back to June of 2013.
With EM fund flows still so oversold and with the follow through we are getting from core markets like China, Brazil, and India we will wait before pitching fresh upside sell levels.
Emerging Money subscribers also know that we have been tracking the spread of the EEM to the SPY ETF as a gauge of overall sentiment towards the asset class relative to developed equities.
This spread has seen its greatest 4 day move since November and may be the more interesting trade than being outright long EM via the EEM ETF.
EM may in fact be starting to build a base for relative recovery. Why? Fed clarity on rates and normalizing capital flows is what EM equities have needed for three years.
U.S. markets are at challenging levels form a valuation perspective and may be running out of technical gas here.
We are not calling for a big pullback in U.S. markets but we do think EM has the foundation to outperform.