Emerging Markets vs USA

I was at a Fairfield University Alumni gathering last night at Park Avenue Tavern. It's great seeing old friends that you don't get to hang out with as much. You also meet a lot of new people that went to your school that are in the business of trying to make money in the markets. I met a couple of young bucks trying to break into the industry and the debate was: USA or Emerging Markets. I was in the "Stay in America" camp while they were pushing Brazil, China etc.

I told them that I felt there was a clear line in the sand in Emerging markets for the short term. We'll use the iShares MSCI Emerging Markets ETF ($EEM) as our vehicle. The level of resistance here is as clear as day:

The 39.00-39.50 level in $EEM was support throughout August and early September and has now turned into resistance. The 50 day moving average has managed to make it's way down here as well. It is currently trying to flatten out as those July highs are no longer in the data. I think that if $EEM can break through, it has some short term upside potential.

Now looking at Emerging Markets relative to US Markets we'll use the $EEM:$SPY ratio. Although it appears there is a similar level of resistance as the absolute chart of $EEM, I think there is probably less upside in the ratio.

Those declining 50 and 200 day moving averages are scary looking. The trend is clear here in that US markets have been outperforming Emerging markets and it looks like that trend is here to stay, at least for now. Sure, can $EEM break through resistance here relative to $SPY? Of course - but then what? I think there is more trouble beyond that.

The absolute chart of $EEM has more upside. If resistance near 39.50 is broken in $EEM, it has the potential to get up to the mid-40s where we have June support (now resistance) and a downward-sloping 200 day Moving Average.

USA USA!!