Indicators: Money Flows from Emerging Markets to the US Market

• Posted by Greg Harmon
• on July 20th, 2011

I have written and presented often lately on different signs that would show that the SPDR S&P 500 ($SPY) is ready to break out of its range between 126 and 136. A good synopsis of them all can be found in my webinar to the Market Technician’s Association (link below). But there is one potential indicator that I have not focused on that is coming into play right now. That is the relationship between the US Markets and Emerging Markets. A shift from investing in Emerging Markets to bringing money back into US based markets could signal a run higher for the $SPY. Using the $SPY and the iShares MSCI Emerging Markets Index ETF, $EEM, lets take a look at this relationship and see what is happening.

$SPY against $EEM

The ratio chart above shows that the $SPY measured against $EEM has been in a symmetrical triangle since February and is testing the top rail. As it sits near the top rail it gets interesting again for the potential break out higher. If it can get through the rail at 2.84 then there is resistance at 2.90 and then 2.95 and 2.975. The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) are increasing supporting more upside. This view suggests a possible flow of capital into the US markets. Looking at the same chart using Fibonacci retracement levels reveals that the turns have

$SPY against $EEM Fibonacci’s

occurred the 61.8% retracement, then back to the 23.6% retracement, back to the 50% retracement and the 38.2% and 23.6%…..you get the picture. The Fibonacci levels have been important. As price is moving higher off of the 38.2% Fibonacci now it appears headed for the 23.6% level after printing a higher low and a higher high. the 2.88 level has significance and through it suggests a break higher to 2.95 and the previous high. One more view using the Andrew’s Pitchfork below shows that price is approaching the

$SPY against $EEM Andrew’s Pitchfork

bullish green Lower Median Line (LML) after breaking down but is still inside the bearish Upper Median Line (UML) of the orange pitchfork. This view s a bit more bearish than bullish as it remains outside of the bullish pitchfork. A move above 2.88 would change that to bullish. So the jury is still out on this indicator of the US market.

The Next Six Months: A Technical Macro View of the Major Indexes

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus