From the desk of Tom Bruni @BruniCharting
The US Dollar Index is up roughly 7.5% since it’s February lows, a move that has hit many of the global stock market ETFs we follow due to their local currency exposure. The Frontier Markets ETF $FM is among those hit hardest, down roughly 16% since late January. With that in mind, we like to focus on strength and there are three global ETFs that continue to hold up well and should lead if/when strength in the US Dollar subsides.
First up is the Emerging Markets ETF $EEM, which despite being down 13.75% from its January highs is still above its breakout area of 44.25. It failed above this level in 2010-2011, but until we close back below 44.25 the breakout in this broad-based Emerging Markets ETF remains intact.
Second on our list is Hong Kong $EWH which broke out of a 9-year base last July, retested the beakout area of 24.30 in February, and is now sitting off its all-time highs by 3.5%. As long as prices are above 24.30, the breakout remains intact with a price target of 34.15.
Bottom Line: Strength in the US Dollar has lead to a rout in the many of the global stock market ETFs exposed to local currencies. With that being said, not all of these ETFs are created equal and identifying relative strength during corrective periods can help us to identify those that may eventually lead to the upside. For now the risk remains well-defined and reward/risk remains skewed in the favor of the bulls for $EEM and $EWH.