Technical Analyst Katie Stockton at MKM Partners has a note out regarding Emerging markets running into resistance after a big October move. She suggests selling $EEM or even shorting it outright. Then thinks we should take a look at Health Care as it appears well-positioned to weather this increased market volatility.
“Analysts at MKM Partners recommended to its trading clients today that it’s time to sell EEM, or better, take short positions in the ETF. The fund closed down by 3.4% on the day.
‘EEM gapped up on its chart late last week,’ they wrote, noting the move technically appears to be a last gasp stab. MKM’s chief technical analyst Katie Stockton described the past month’s up and downs as leaving EEM looking rather ‘exhausted.’
Also, the ETF faces ‘significant’ technical headwinds near its 50-day moving average, she noted. That’s a key line-in-the-sand often pointed to as the barrier separating whether an ETF has short-term price momentum to move forward or not.
At the same time, $EEM isn’t likely to find its first base of initial support until it falls about 7% below current levels, according to Stockton.”
“Rather, MKM Partners is recommeding that investors buy the Health Care Select Sector SPDR (XLV). It’s a top-heavy, large-cap focused fund; the portfolio’s top seven names comprise half of all assets. Those include:
Stockton noted that the health care sector appears relatively well-positioned to weather increased volatility in the market in the event of another downleg. The ETF’s relative strength — which measures how its shares have moved compared to the blue chip SPY — has been exhibiting increased momentum, she added.”
I have always had a ton of respect for Katie Stockton and value her views. This particular take on the market is a bit conservative for me at this point. I think there is still a little room on the upside for risk-on assets. If you take a look at the relative performance of Health Care, it looks a little vulnerable for a relative breakdown here.