From the desk of Steve Strazza @Sstrazza and Grant Hawkridge @granthawkridge
Thanks to everyone who participated in last week’s mystery chart.
We asked whether this chart had the momentum to finally reverse course and break loose from the grips of its primary downtrend.
The responses were mixed, with many wanting to wait for more information… In many cases, looking for confirmation of the impending breakout.
Well, not much has changed as the chart has yet to make a decisive move from this key level.
The chart was a weekly candlestick view of the MSCI Frontier Markets ETF $FM.
Let’s dive in and see how we want to play this index comprised of stocks from some of the least developed countries around the world.
Here is an updated look at the chart, this time with the x and y-axes:
Buyers have remained resilient as price continues to press up against resistance at a roughly 7-year downtrend line. This would have been a perfectly logical level to see some corrective action and a downside move. But it looks like FM is going to digest its recent gains through time instead of price… This, of course, is a big development for the bull camp.
Although from a structural perspective, sellers have been in control for a long time as illustrated by price stair-stepping lower from the left to right side of the chart.
So, what’s it going to take for this to change and buyers to really reclaim the reigns of this primary trend?
Well, they are already making serious strides as evidenced by the consistent rally off last year’s lows. Just look at how price has continued to grind higher with almost every passing week since.
As for momentum, we’re seeing a dramatic change in character there as well. Both the daily and weekly RSI-14 registered overbought readings in the back half of last year, transitioning FM to a bullish regime on both timeframes.
All we really need now is a valid breakout above this trendline resistance around 33. If and when we get it, we think it’s safe to say the trend has changed from bearish to bullish, and the bias in Frontier Markets is higher as long as we remain above this critical level of interest.
Now, let’s take a sum of the parts look at the entire Frontier Markets space by analyzing the trends across various timeframes for the indexes’ individual components. Here’s a look at our custom trend model for all the Frontier Countries:
This is the same story wherever you look globally right now. There is a lot more green than red, and there continues to be plenty of new highs compared with very few new lows…
Taking things one step further, countries like Kenya, Morocco, and Vietnam are not exactly areas that investors flock to when looking for safety. In fact, it’s quite the opposite.
We’re seeing some very risk-on action in International Equity Markets right now, and this is just the latest example of it.
Over 70% of the countries in our Frontier Markets universe have a bullish bias over the intermediate-term, and 83% are currently in long-term uptrends.
Using this type of granular approach to analyze an index based on what’s happening beneath the surface in its components provides us with essential information regarding its future directional bias.
And right now, at least for Frontier Markets, this analysis is giving us the green light and suggesting higher prices to come!
Thanks for reading and please let us know if you have any questions!