I wrote these words back on June 24, 2011: “This is the first real technical warning sign that the market
is on the verge of breaking down and the economy is on the verge of a
recession.” I was referring to a monthly chart of the i-Shares MSCI
Emerging Market Index (symbol: EEM), which was displaying a pattern consistent
with past market tops.
Now 3 months later, we once again turn to EEM and say,
“be careful”. See figure 1, a weekly chart of EEM. The black and red dots are
key pivot points, which are the best areas of buying (support) and selling
(resistance). EEM is threatening to close (on a weekly basis) below the most
recent key pivot point or support area at 39.68. This would be bearish. In
particular, this could be very bearish. With investor sentiment so extreme, we
should have seen a bounce at these levels. Not only haven’t we seen the bounce
in EEM, but we are actually seeing prices (maybe) break through a support area.
This has a high likelihood of leading to a waterfall decline (if there is a
weekly close below 39.68).
Figure 1.
EEM/ weekly
The market action is becoming increasingly
narrow and as we discussed yesterday, it is concentrated in
the “go to” issues of the NASDAQ100. Copper, EEM, China, and Europe are
technically looking weak. However, any such proclamation that the world is
ending is on hold until after the Fed meeting on Wednesday. Who knows…maybe
they have a plan to bail out the world?
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