Is The Next Wave Up “Emerging”?
A broad emerging markets index has broken above key resistance.
One theme in 2017 has been the emergence (no pun intended, this time) of stock markets from around the globe. Following years of U.S. dominance, foreign markets are playing catch-up, with many of them -- from Europe to Asia, developed countries to emerging markets -- exhibiting key breakouts.
One area that we have been focusing on over the past year is that emerging market space. There has been no shortage of big breakouts and key technical developments within that arena during that time. However, no bull market goes in a straight line. There will be points of resistance and struggles along the way, at least in the short-term.
Within the emerging market space, we identified a few months ago what we felt may be a major confluence of potential resistance in the benchmark MSCI Emerging Markets Index (EMI). Specifically, as we stated in the post, the confluence included
“a trio of key potential resistance points intersecting near the 1015 level:
- The underside of the broken Post-2002 Up trendline that connected the 2008 lows
- The Post-2007 Down Trendline that connected the peaks in 2011, 2014 and 2015
- The 61.8% Fibonacci Retracement of the 2011-2016 Decline”
As it turns out, the 1015 level did indeed hold, almost precisely, as the EMI never got above that level by more than a few points over the next 2 months. However, one positive for the bulls was that the index never sold off too far below that level either. It kept bumping against that 1015 ceiling as if looking for a hole to pop through.
On Wednesday, it did indeed pop through.
Here’s a close-up look at the recent development.
So does this mean it’s off to the races again for the EMI? Maybe, maybe not. It certainly overcomes a major level of resistance due to the various lines clustered around the 1015 area. Therefore, further upside has immediately been opened to the EMI.
However, nothing is guaranteed in the financial markets. There is always the possibility that the breakout eventually fails and produces commensurate risk to the downside (that is a bear in the picture above, after all). Regardless, no position should go unattended without the application of some sort of risk-management overlay.
In a premium post at The Lyons Share, we’ll discuss the important things to monitor in measuring the success or failure of this breakout, the next key levels to watch in the EMI and how to potentially profit from such developments.
If you want that “all-access” version of our charts and research, we invite you to check out our new site, The Lyons Share. Thanks for reading!
Polar bear photo by Paul Souders and the grand prize winner of the 2013 National Geographic Photo Contest.
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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.