Looking at the chart below we find the price for the emerging market ETF – EEM on its own outright and on the spread against the SPY ETF. The later we often refer to as the “EM/DM Spread”.
I have often talked about how Emerging Markets correlate very highly with small cap stocks in the U.S. for a couple reasons:
As Emerging Markets push near one year highs, we wanted to refresh our core views on markets, outlook and risks.
While nothing works like that in trading, and while we were wrong on the overall direction of this spread for a good part of 2H’13, we are seeing some price action in this trade.
With markets under pressure and EM’s propensity to underperform during periods of downdraft for global markets, we are ready to adhere to some key technical levels on our MSCI Emerging Market (EEM) vs S&P 500 (SPY) spread trade.