Welcome to The Market’s Compass Emerging Market ETF Study, Week #585. As always, it highlights the technical changes of the 20 EM Country ETFs that I track weekly and publish every third week. Premium subscribers will receive this week’s Emerging Market Country ETF Study sent to their registered email address. Previous editions can be accessed by paid subscribers via the Substack Compass Market blog. Next week I will publish a study of The Market’s Compass Developed Markets Country ETF. On Sunday, I published the latest edition of The Market’s Compass Crypto Sweet Sixty Study, which I publish weekly and track the technical changes of sixteen of the larger cryptocurrencies.
The Emerging Markets Country ETF Compass Study is being sent to free subscribers tomorrow (albeit a day later) as well as my regular paying subscribers today in a not-so-extreme effort to get free subscribers to support the work on the three ETF studies and the weekly Crypto Sweet Study.
To understand the methodology used in constructing the EM Country ETF Individual Technical Rankings target, see the mc technical indicators page. www.themarketscompass.com and select “em country etfs”. Below is a Cliff Notes version * full explanation of the methodology I use…
*The technical rating system is a quantitative approach that uses multiple technical considerations, including trend, momentum, accumulation/diffusion measurements, and relative strength of each of the 20 individual country ETFs, which can range from 0 to 50. oversold indicator as well as confirmation/disconfirmation indicator. There is also an overall rating for each geographic area, which can be viewed as a relative measurement week by week.
Last week, the Total EM Technical Rating or “TEMTR” fell -8.48% to 669.5 from 731.5 the previous week, down from a reading of 728 three weeks ago ending the week of 2/13. Asia Pacific’s overall ranking fell the most among the three geographic regions, falling -13.1% to 269 from 310 the previous week. The overall EMEA EM rating fell from 215 -5.3% to 203.5. The Total Lat AM EM rating fell -4.8% to 196.5 from 206.5 last week.
Four of the twenty EM Country ETFs I track on these pages posted gains in the Technical Rating, or TR, last week; four remained unchanged and twelve had TRs, of which two double digits fell. iShares MSCI India Index Fund ETF (INDA) and Global X MSCI Columbia ETF (COLO) TRs fell by -13 and -11, respectively. Last week, ten TRs were in the “green zone” (TRs between 34.5 and 50), seven were in the “blue zone” (TRs between 15.5 and 34) and three were in the “red zone” (TRs between 0 and 15). Last week, fourteen of the EM Country ETF TR ended the week in the “green zone”, five in the “blue zone” and one in the “red zone”, indicating a technical deterioration in EM. Average TR loss was -3.11 compared to last week’s average TR gain of +0.18.
* Visit the Market Compass website to understand the construction of Technical Condition Factors www.themarketscompass.com and go to mc technical indicators page and select “em country etfs”.
A short version of how to calculate technical condition factors is given below…
There are eight technical condition factors (“TCFs”) that are summations of the twenty technical condition TRs of each TCF question. The eight factors of technical condition do not ask a series of questions. Therefore, it is calculated as a percentage. If an individual TCF reading is 100%, it means that all Twenty ETFs have met that specific TCF benchmark.
This past week, a reading of 37.86% was recorded in the daily technical condition factor (“DMTCF”) or 53 out of 140 positive points.
As a means of confirmation, if all eight TCFs improve on a weekly basis, most of the 20 ETFs within it will improve on a technical basis, confirming a broader market advance (think of an advance/decline calculation). Conversely, if all eight TCFs fall in a single week, this would confirm a broader market decline. Last week only one TCF rose and seven fell.
The relative rotation graph, commonly called RRG, was developed in 2004-2005 by Julius de Kempenaer. These charts are a unique visualization tool for relative strength analysis. Chartists can use RRG to analyze the relative trends of several securities against a common benchmark (in this case EEM) and against each other over any given period (in the case below, daily) over the past three weeks. The power of RRG is its ability to plot relative performance on a graph and show the true trend. All RRG charts use four frames to define the four phases of the relative trend. Optuma RRG charts range from leading (in green) to weak (in yellow) to lagging (in pink) to improving (in blue) and back to leading (in green). True rotations can be seen as securities move from one quadrant to another over time. This is just a brief overview of RRG charts. For more information, see the scripts and links at the end of this Blog.
Not all 20 ETFs are plotted on this RRG chart. I did this for clarity. The ones I think are of more technical interest remain.
Three weeks ago, the iShares MSCI South Korea Index Fund (EWY) rose higher in a weakening frame, and the following week it gathered momentum and entered the leading frame with an improvement in relative strength momentum, and at the end of last week, EWY recorded the best in EWY. (see Table of Tables below). The iShares MSCI Thailand Market Index ETF (THD) broke out in a bullish frame two weeks ago and has since lost its relative strength momentum, entering a bearish frame a day or two later. The iShares MSCI Index Brazil ETF ( EWZ ) fell into the weak quadrant three weeks ago and has continued to track lower relative strength. VanEck Vectors Vietnam ETF (VNM) gained three-week relative strength momentum, entering the improving quadrant and leaving behind the lagging quadrant.
The “Table” below shows relative strength and relative strength readings for the iShares MSCI Emerging Markets Index ETF, or EEM. It begins with the readings at the end of last week, followed by the following three weeks, which includes the latest Survey readings for the week of 1/16. If there is an improvement in the relative strength ratio or relative momentum reading week over week, I’ve highlighted it in green. If there is an abbreviation in either, it will be marked in red, and the unchanged reading will remain in black in both. The color coding system serves as a heat map over the past four Friday readings, showing continued improvement, deterioration, or stagnation compared to the EEM benchmark. The ETFs shown in the RRG chart above are shown in blue.
* “TEMTR” is the sum of 20 EM ETF Individual Objective Technical Ratings. It serves as an overbought or oversold indicator as well as a confirmation/disconfirmation indicator.
The subtitle of this week’s study is “IMO Somethings Gotta Give.” The technical reason for this second title can be seen in the table above. The Total Em ETF Rating, or TEMTR, fell from its 13-week exponential moving average (red line) to a sub-700 reading, while the EEM rose to its new weekly average. Differences as prices reached new highs As seen in the short-term chart, there are more technical features that indicate that the EEM has been extended and is causing the price to move even larger.
* “ATR” like “TEMTR” serves as an overbought or oversold indicator as well as a confirmation/confirmation indicator.
As can be seen in the Daily chart after these comments in the Weekly chart, on Friday the EEM initially rose above the upper parallel (solid gold line) of the Schiff Modified Pitchfork (gold P1-P3) on the weekly chart above, but at the end of the day it returned to the Pitchfork limits. The emerging markets index’s five-week index has declined from a recent high of 65.90. The 8-week Stochastic Momentum Index (center panel) has started to become overbought and the EM Technical Average Rating has also reversed and is facing Moving Average support.
Learn about Pitchforks and their welcome in the three-part Pitchfork guide on the Compass Market website, www.themarketscompass.com
Read more about the technical status of EEM at Opinions about the short-term technical state of EEM but first…
*Excludes dividends, if any.
Seven of the twenty EM Country ETFs rose in absolute terms last week, and thirteen were lower for the week. Seven EM ETFs outperformed +0.38% gain in EEM on a relative basis and thirteen underperformed. The five-day average absolute return on EM ETFs was 0.00% versus a 0.38% return on EEM. The average absolute return last week was +2.00%.
The daily chart above shows the above-mentioned daily uptrend through the upper parallel (solid red line) of the short-term Schiff Modified Pitchfork (red P1-P3) and the subsequent reversal following a break in the intermediate line. The Stochastic Momentum Index has bounced back from overbought territory through its signal line. Short-term technical characteristics are mostly shown in the lower panel. The EM Country ETF Daily Momentum / Breadth Oscillator has again turned lower (yellow dotted line) and has broken below both moving averages confirming last week’s highs. All these technical points indicate that a larger correction is on the cards.
All charts are produced by Optuma, whose charting software allows anyone to visualize any data, including my objective technical ratings. The following links are an introduction and in-depth guide to RRG charts…
https://www.optuma.com/videos/introduction-to-rrg/
https://www.optuma.com/videos/optuma-webinar-2-rrgs/
To get a 30-day trial of Optuma’s charting software, go to…
www.optuma.com/TMC.
