Emerging Markets Timer in Positive Territory


Investors seem to be getting more comfortable with the idea of a Fed rate increase by the end of the year and uncertainty about the growth prospects for the Chinese economy. That’s the only way to interpret both the strong uptrend in the major U.S. indexes during October and the relative stability of Chinese and emerging-market indexes. Many economic analysts see this as a fragile market rally, vulnerable to bad news, but what we see is a market that’s advancing.

The iShares MSCI Emerging Markets ETF (EEM) has been trading sideways with support at 35 since October 7, but slipped a fraction today. EEM is now right on its rising 25-day moving average, but still well above its 50-day, which is at 34. That keeps our Emerging Markets Timer in positive territory. We also note that PowerShares Golden Dragon (PGJ), which tracks Chinese ADRs on U.S. exchanges, is still soaring as investors get more comfortable with the “New Normal” in China. Having a positive reading from our market timer keeps us optimistic and looking to put more money to work.

Seven of the 11 stocks in the portfolio or on our watch list have now reported their quarterly earnings and the news has been good across the board (although reactions from investors have varied). We have definite dates for two of the remaining four companies.

The major indexes were all down fractionally today, with the Nasdaq showing the greatest weakness. At the close, the Dow was down 24 points (0.1%), the S&P 500 virtually flat, down one point (0.1%), and the Nasdaq down 21 points (0.4%). The iShares MSCI Emerging Markets ETF fell 33 cents (0.9%).

This is an excerpt from Cabot Emerging Markets Investor, which seeks to capitalize on the enormous potential in emerging market countries. Chief Analyst Paul Goodwin has been a researcher and writer for over 30 years and a member of the Cabot investment team since 2005.

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