Emerging stock markets bulls at inflection point

Emerging stock markets (EEM) may start to undergo a multi-month corrective decline below 46.10 resistance.

iShares MSCI Emerging Markets (EEM) – Losing upside momentum at key resistance

click to enlarge charts

Key Levels (1 to 3 months)

Pivot (key resistance): 46.10

Supports: 43.35, 42.20 & 40.10

Next resistance: 50.18 (major)

Directional Bias (1 to 3 months)

The share price of EEM has rallied by close to 10% in the month of Dec 2019 to print a high of 45.78 on 02 Jan 2020 reinforced by the de-escalation of trade tension between U.S. and China via the impending agreement of the official Phase One trade deal sign-off on 15 Jan 2020. From its 14 Aug 2019 swing low of 38.72, the EEM has recorded a return of 18%

From a macro environment perspective, the rosy picture has started to turn “greyish” with rising geopolitical risk in the Middle East that has triggered a spike in oil prices. Almost half of major emerging market economies are net oil importers such as India, China, South Africa, thus a runaway rise in oil prices can have adverse effects on these countries’ sovereign balance sheets which in turn lower economic growth prospects.

Bearish bias below 46.10 key medium-term pivotal resistance and a break below 43.35 is likely to reinforce a further potential slide to target the next supports at 42.20 and 40.10 next within a long-term secular “Symmetrical Triangle” range configuration in place since Oct 2007.

On the other hand, a clearance with a daily close above 46.10 invalidates the bearish scenario for a rally towards the major resistance at 50.18 (Fibonacci expansion cluster & upper boundary of the “Symmetrical Triangle”).

Key elements

  • The recent rally of the EEM has reached an inflection level of 46.10 which is defined by a medium-term ascending range configuration in place since 29 Oct 2018, the congestion area of 09 Feb/06 June 2018 and a Fibonacci retracement/expansion cluster.
  • Price action has formed a weekly bearish “Shooting Star” candlestick pattern coupled with a bearish divergence signal seen in the daily RSI oscillator at its oversold region. These observations suggest that medium-term upside momentum has stated to wane and the risk of a bearish reversal in price action increases at this juncture.
  • The 40.10 significant medium-term support is defined by the 76.4% Fibonacci retracement of the recent up move from 14 Aug 2019 low to 02 Jan 2020 high and the lower boundary of the ascending range configuration.

Charts are from eSignal 

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.