VWO Vanguard FTSE Emerging Market ETF, update, EEM

The usual then – July 8, 2011 – and now charts;

vwo july 8 2011vwo aug 23 2013

This is not a well known ETF but it does represent the emerging markets well. If it is true that a banker is someone who will lend you money when the sun shines, but asks for back as soon as it might start to rain, then the emerging market countries are the real recipients of such policies. But it all takes a lot of time so this is nothing more than a roadmap. Even so it is a correct roadmap so far so, perhaps that will stay that way. At the time of writing it was not clear yet if the large B-wave would have two equal parts or  parts that relate to each other by about  1 to 0.62. The latter proved to be the correct choice.  We are in a large C wave which will unfold as a 5-wave affaire if history repeats. We are presently in wave 3 so things could get nasty fast. Stay away for a few more years.

See also EEM etf from May 12, 2012 and now;

eem may 2012eem aug 23 2013

EEM, Ishares Emerging Markets

eem may 2012

We correctly (within a single dollar) anticipated the high point of the “right shoulder” and the subsequent drop (so far at least). So it is a good time to have another look. In EW terms the Great Recession drop was wave A, the very large rebound wave B that did not double–top by a mere $5 or so, and now we are in wave C. Wave C should unfold in 5 separate waves so that the entire structure becomes a flat, which, as the name more or less suggests is a mostly sideways structure which subdivides as a 3-3-5. The C-wave, more often than not is the longest, perhaps as a result of the investor having to go through the same humiliating experience twice, usually having learned nothing the first time which gives the structure a slightly downward skew.

EW , which, for the most part, is pattern recognition does not use the H&S pattern as such. It, the H&S pattern, has its origins in the DOW theory, but a pattern is a pattern and the predictive value is recognizing it before everybody else does. Using this in the above chart we have draw the “neckline” horizontally at about $35. Neckline is a bit of a misnomer, armpit line would describe it better. In any event that is the level of support, when it is broken there is a void underneath and the stock should drop by an amount equal to the amount the head sticks out above the neckline. In this case that is at the $20 level. EW has the point of recognition which is where the bulls realise that the are barking up the wrong tree. This point usually lies at the mid-point of the 3d wave. Whatever approach one prefers, all hell should break lose at about $34. Add it all up one should look for a target between $20 and $10 and a time of arrival between early 2013 and 2014

For those that are interested, it is possible to scroll down two blogs and enlarge the chart of the TSX60 Capped index. It can then be dragged up (takes a little dexterity) and then put next to this chart when that too is enlarged. After playing around with those two charts for a little while one is tempted to conclude that Canada too is an emerging market, or alternatively and more kindly, that the world has become one.

EEM Emerging Markets ETF

eem feb 2012

The EEM has followed our script precisely, perhaps it will continue to do so (see various previous blogs). One can argue about certain minor details in the above count, but in the main it looks pretty acceptable. 5 down with a nice little triangle in the 4th wave position for Wave 1 down, taking back about 34% of the preceding rally and then an A-B-C in which C is vector equal to A, retraces roughly 62%, and moves right back to the 4th wave (highest point in the triangle). The RSI and the MACD are both topping. Somewhere around here this ETF should turn down.

The XEM, the Can $ equivalent, has pretty well followed the same pattern, shown below without annotations.

xem feb 2012

EEM , XEM Emerging markets

From previous blogs (Jan 22, 2011) we had this set of charts. The EEM is an ETF in US$ and the XOM is in Canadian dollars;

eem 2011 xem 2011


Today they look like this:

eem aug 2011 xem aug 2011

The EEM topped 3/4 months later than expected but added only 2 or 3 dollars but we are down 24%. The XEM did not go higher but did sort of triple top, it is down slightly less but seems to be doing it more rapidly. If history repeats itself emerging markets could decimate your portfolio, not because they are inferior but because they are less liquid.