This is major stock market news: emerging stock markets are breaking out. We wrote at least once per month, since April 2016, that EEM ETF (representing emerging market stocks) should break above 42 points in order to be in a new secular bull market.
Investors should not get confused by the fact that this ‘event’ does not get the coverage it deserves. That is because most analysts, and financial media in particular, simply cannot identify what’s important and what not by reading charts. The fact that many believe that InvestingHaven is about technical analysis, which it isn’t, is telling.
In April of 2016 we wrote Will Emerging Markets Become The Investment Of 2016 And 2017.
We published a nice emerging markets stock chart in yesterday’s article 3 Hottest Market Trends Of Summer 2017. However, in the current article, we have 2 truly awesome charts.
The first chart shows EEM ETF on the very long term (20 years). The unusually long triangle on this chart is the outstanding feature. Try to look for a similar pattern on any other chart; it is close to impossible to find a 9-year long triangle formation. As indicated on this chart (purple circle) the breakout is taking place. The ultimate confirmation is 46 points in EEM. The downside is 35 points, just 18 percent below today’s level. The fact that the gap between breakout and breakdown is so small is very bullish!
The second chart is even more exciting. It shows emerging markets compared to the U.S. stock market (S&P 500). As said many times before, a ratio cannot be considered a leading indicator but more of a secondary indicator. In that sense this ratio confirms the breakout shown above.
The way we interpret this chart is that U.S. stocks have outperformed for 6 straight years but emerging markets are about to take over leadership. This ratio is inches away from a mega breakout, and it would coincide with the break above 46 points in EEM.