Market Overview

Look Out Below: EM ETFs Testing Critical Support

Heading into Tuesday's trading session, U.S. equities are on a nasty two-day skid that has threatened the health of plenty of ETFs' charts. There is a fair chance the Friday-Monday downward spiral has brought some technical damage to plenty of ETFs.

The result is that some funds that recently looked somewhat sturdy now look vulnerable. Regarding emerging markets ETFs, the situation is worse. Broadly speaking, emerging markets ETFs have lagging U.S. equities. Over the past three months, the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) is off 8.5 percent compared to a 1.3 percent decline for the SPDR S&P 500 (NYSE: SPY).

VWO is by no means the only emerging markets ETF out there, but it is the largest, and the fund's struggles highlight plenty of weakness across the broader emerging markets universe. Whether it is because of Europe, country-specific issues or other fundamental woes, plenty of emerging markets ETFs are now in danger of violating critical technical support areas. Here are a few worth monitoring.

Market Vectors Brazil Small-Cap ETF (NYSE: BRF) The performance gap between the Market Vectors Brazil Small-Cap ETF and the iShares MSCI Brazil Index Fund (NYSE: EWZ) over the past 90 days is not that wide. Given Brazil's EWZ's variety of problems that is not saying much.

The rub with BRF is that the ETF has shown itself to be one of the best funds with which to play an emerging markets rally. Problem is today's environment is the opposite of the type of ebullient times an ETF like BRF needs to thrive. A drop below $34 could mean bad things are on the way for BRF.

PowerShares India Portfolio (NYSE: PIN) If it is not one thing, it is another for India ETFs. India, Asia's third-largest economy, has an array of fundamental problems ranging from slowing growth to inflation to a tenuous grip on an investment-grade credit rating.

Rising food prices could be the next thorn in India's side. Bottom line: The current state of affairs in India dictates that ETFs tracking this country are now short-term trades, not buy-and-hold investment. A move below $15.50 would be detrimental to PIN's health.

iShares MSCI All Peru Capped Index Fund (NYSE: EPU) It is hard to argue with Peru's growth numbers. Economic activity there increased 6.5 percent in May ,a href="http://www.businessweek.com/news/2012-07-15/peru-growth-quickens-as-economy-shrugs-off-export-drop">Bloomberg reported. That is up from 4.4 percent growth in April. Peruvian officials forecast growth of at least 5.5 percent for June.

For a country still highly dependent on materials exports, those are impressive numbers. In fact, Peru may prove to be the fastest growing South American economy this year. Those numbers bode well for EPU's long-term prospects.

However, Peru's status as a materials producer in the midst of the risk off trade and a slowing global economy are weighing on EPU. A move below the $39.70 area could mean another eight percent or more comes off this fund.

iShares MSCI South Korea Index Fund (NYSE: EWY) South Korea's status as an emerging market has been up for debate for several years, but the view that this is one of the more conservative developing nations investors can be involved with is not helping EWY. There is speculation the South Korean economy could enter into a prolonged slump due to weakness in the Eurozone and the U.S., two primary destinations for South Korean exports. Finding EWY's danger spot is not hard. If the ETF trades below $50, that is a sell signal.

For more on technical analysis on ETFs, click here.

Posted-In: Long Ideas News Short Ideas Emerging Market ETFs Technicals Global Econ #s Economics Intraday Update Markets Trading Ideas ETFs Best of Benzinga

 

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