Last Friday I tweeted out this chart that shows the ratio between the iShares Emerging Market ETF ($EEM) and the S&P 500 ($SPY). I noticed that the ratio was approaching previous support as shown by the red arrows and the blue line. This was an important juncture for emerging market bulls, they needed to break this level to keep the music playing.
Well it seems the bears bulled the plug as the ratio between emerging markets and the S&P 500 produced a false break as it made an attempt to keep from turning previous support into resistance. At the same time we saw the relationship’s Relative Strength Index (RSI) work off ‘overbought’ status which is a sign of heavy buying as traders pushed up the relative performance of $EEM against $SPY. Going forward I’ll be watching to see if we get another rest of this resistance or of we see emerging market once again under perform U.S. equities and we get a re-test of the March low.
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