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Christian Tharp, CMT

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Five Star Stock Watch: Emerging Markets ETF

During the stock market sell-off in January there was a lot of talk about the emerging markets.

Little did the "guy on the street" know, but the emerging markets had been selling off for months before January.

The emerging markets have rallied nicely since, along with our markets.

So, now what? Is the worst over, or just beginning? A great way to know is by analyzing the biggest emerging markets ETF, which can be seen below. 

Category: Diversified Emerging Markets

Ticker Symbol: (NYSE: EEM)

Fund Family: iShares

Legal Type: Exchange Traded Fund

The investment seeks to track the investment results of an index composed of large- and mid-capitalization emerging market equities. The fund seeks to track the investment results of the MSCI Emerging Markets Index, which is designed to measure equity market performance in the global emerging markets.

See also: Five Star Stock Watch: General Motors

Holdings include Samsung Electronics, Taiwan Semiconductor, China Mobile, America Movil, Hyundai Motors, as well as others.

Please review the 1-year chart of the iShares Emerging Markets ETF below with added notations:

As stated above, the emerging markets didn't get hit by an "out of nowhere" sell-off in January as the financial media would lead everyone to believe. In reality, the EEM had been declining since October. 

More importantly, traders should recognize that the EEM has broken below its key price level at $40 and has now rallied back up to it. This level should act as resistance and be the launching point for a continuation of the decline.

You will also notice that volume has decreased noticeably during the rally, thus reducing the validity of the most recent run-up.

See also: Five Star Stock Watch: Canadian Solar

No matter what your strategy, or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

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