Medium term
Trade view / 12 September 2016 at 7:24 GMT

EEM set to retrace advance off January lows

Instrument: EEM:arcx
Price target:
Market price:

The low in the Emerging Markets ETF (EEM:arcx) came in January this year around the $27.50 area. The advance off the lows has so far taken 230 days, which implies that the January low completed its descent off the September 2014 highs. 

This market has yet to prove its longer-term bullish intentions by producing an orderly pullback and a breakout.

A 230-day cycle by itself doesn't imply a whole lot, but the 72-day advance off the low on June 27 is telling us that we might have a complete move off the January lows as we have a 360 degree time alignment with the move from January 21 to June 27 with the last swing higher into the peak on September 7.

The price structure with a move from $27.50 into the $38.30 peak is very close to a 180 degree alignment from the lows implying a complete cycle from this perspective as well.

Since we had a close below $37 Friday, the next line of support is found at $34 and from there $31.

Looking at the oscillators we have a solid negative divergences on both the daily Relative Strength indicator as well as on the Slow stochastic indicator which implies that the move higher is losing momentum – something that was confirmed Friday.

The overall picture is now negative and we should at least experience a larger pause in the trend higher and a pullback should be able to make its way to at least $34.  

Management and risk description

The plan is to sell EEM at market below $37 for a move lower into support at $34 and possibly even $31. The stop could initially be placed upon a daily close above $38. If one would like a tighter stop a daily close above Friday's candle at $37.45 appears an appropriate spot.

The risk to this setup is an immediate recovery and a break a breakout above $38 which would indicate at least another month in an uptrend off the January lows. 


Entry: sell below $37.

Stop: daily close above $38.

Target: $34 and $31.

Time horizon: one to four weeks.

EEM:arcx daily chart:
EEM:arcx daily development chart

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Source: Saxo Bank 

EEM:arcx weekly chart:
EEM:arcx weekly chart
Source: Saxo Bank
EEM:arcx daily development chart:
EEM:arcx daily development chart

Source: Saxo Bank
— Edited by Michael McKenna

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Non-independent investment research disclaimer applies. Read more
Johan Berntorp Johan Berntorp
Below yesterday's low at 35,88 ish would further confirm bearish bias. The stop could now be placed at either the top of the September 9 candle at about 37.50 or tighter if one like at 37.20 which was the peak of Monday's candle.


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