Daily Update: Focus on EEM


The post election rally looks to be a one-day wonder and we may be back into trend following mode. Today I want to focus on EEM, the MSCI Emerging Index Fund. It generated a Sell signal on Monday's close. The Dec $40p opened the next morning at 1.23 and then got caught up in the post election euphoria, falling to as low as 0.78 on Wednesday, for a 36% drawdown.  Today it is trading back up over 1.10, so the trade is still active even at a stop at 50% (0.62). 

Now to the chart. This ETF is giving back much of what it gained yesterday. In addition the stochastic (bottom window), which has been tracking the smaller price cycle very closely since July, is turning over, suggesting an imminent decline. Notice how all three of the prior stochastic sells (red vertical lines) were cyclic tops, Tuesday's Blue Line Sell has coincided with the latest stochastic cycle top. These two indicators have now combined to make a strong case for lower prices ahead. The most recent low for EEM was at $37.58 on October 29th, which now becomes a natural price target. At that low on the 29th the Dec $40p was trading up over $3.00.