Thursday, May 5, 2011

Are Emerging Markets Giving the US a Sell Sign?

Let's assume that demand from emerging economies is a primary driver of the current expansion. Let's also assume that stock markets are leading indicators; as traders see the increased possibility of economic growth, they bid up shares in anticipation of increased earnings. Given those two assumptions, let's take a look at three emerging market ETFs.

Brazil has a sideways bias with prices stuck in a roughly 10 point range (70 to 80). The longer term trend (the 200 day EMA) is still higher, but the EMAs are now jumbled; the 10 and 20 day EMAs are moving lower and the 10 day EMA has crossed below the 10. Also note that prices have fallen sharply this week and are now right about the 200 day EMA.

The China ETF has a very similar profile the the India ETF. Most importantly, note that prices are gravitating around the 200 day EMA.

Over the last six months, the India ETF's prices have a slight downward bias, although the 200 day EMA is in a more or less sideways move. All the shorter EMAs recently moved about the 200 day EMA, but are now all moving lower with the 10 day EMA below the 20 and abo0ut to move below the 50.

All of these ETFS are at best showing a "wait and see" attitude regarding their underlying economy. As such, we should pay attention for the possible implications for the US market.