The Market May Have Found Support

Investors remain gloomy as they digest the possible implications of 1) a slowing Chinese economy for global growth trends, 2) a likely rate increase from the U.S. Federal Reserve Board by the end of the year and 3) the start of Q3 earnings season. It’s also possible that the waves of unconnected negative news from the 24-hour news cycle—Volkswagen, ISIS, Syrian immigrants, etc.—are souring attitudes. Plus, winter is coming.

The iShares MSCI Emerging Markets ETF (EEM), which plunged as low as 30 on August 24, popped back above 35 on September 17 before dropping back below 32 on Monday. It’s too early to tell whether this second correction constitutes a re-test of the August lows (and thus the beginning of a bottoming process). But EEM has now booked three days of small gains and is within striking distance of the now-rising 25-day moving average. If this trend continues, we could get a new buy signal from the Cabot Emerging Markets Timer in as little as a few days. We’ll be watching.

The action of the Shanghai Exchange since its own August free-fall ended on August 26 has been interesting. The Shanghai bounced back for two days, recovering about a quarter of its decline, but has pretty much stayed in a trading range between the August 26 low and the August 28 rebound. It’s impossible to know how much of the Shanghai’s calm, flat trading is due to government buying, but it’s a reassuring pattern that’s typical of market bottom-building processes.

The major indexes slid during the morning session and climbed during the afternoon session, finishing mixed, but virtually flat. At the close, the Dow was down 12 points (-0.1%), the Nasdaq gained 4 points (0.2%), and the S&P 500 slipped 7 points (-0.2%). The iShares MSCI Emerging Markets ETF was up 17 cents (0.5%).

A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and chief analyst of Cabot Emerging Markets Investor since 2005.

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This was an excerpt from Cabot Emerging Markets Investor, which seeks to capitalize on the enormous potential in emerging market countries. Chief analyst Paul Goodwin, Cabot’s international investing guru, provides your passport to profits.

Paul Goodwin can be found on Google Plus.

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