Welcome to this week’s Compass Emerging Market ETF by Country Study, Week #409, which is published in my Substack blog. It will highlight the technical changes of the 22 emerging market ETFs that I follow on a weekly basis and publish every three weeks. To celebrate National Andrews Pitchfork Week, paid and free subscribers will receive this week’s Emerging Markets ETF Study sent to their registered email address. This will allow free subscribers a one-time chance to see what they are missing by being able to read the full content. Past posts are available to paid subscribers through The Market’s Compass Substack blog. Next week we will release the Compass US Index and Sector ETF market study.
Last Week and Last 8 Week Technical Rankings of Individual Emerging Markets ETFs
The Excel spreadsheet below shows the weekly change in the technical ranking (“TR”) of each individual ETF. The technical ranking or rating system is a fully quantitative approach that utilizes multiple technical considerations that include, but are not limited to, trend, momentum, accumulation/distribution measures, and relative strength. If the technical condition of an individual ETF improves, the TR of the technical ranking increases and, conversely, if the technical condition continues to deteriorate, the TR decreases. The TR of each individual ETF ranges from 0 to 50. The main conclusion of this spreadsheet should be the trend of the individual TRs, either continuous improvement or deterioration, as well as a change in direction. Second, a very low ranking can signal an oversold condition and vice versa, a very high and continuous number can be considered an overbought condition, but with the proper warning, oversold conditions can continue quickly and overbought stocks that showed extraordinary momentum can easily become more. overbought. A sustained trend change must play out in the TR for it to be actionable. The TR of each individual ETF in each of the three geographic regions can also reveal the relative relative strength or weakness of the technical condition of selected ETFs in the same region.
The largest gain in the EM region’s three total rankings since our last publication on September 26 for the week ending September 23 was in the Lat/AM region which rose +37.5% to 69.5 compared to the reading of 50.5 recorded four weeks ago. This is followed by a slightly lesser gain of +25.7% in the EMEA total technical ranking, which fell from 91.5 to 115 over the same period. The total technical ranking for the Asia-Pacific region recorded a loss of -31.8% over the same period. Suffering a ripple effect from the decline in the Total Asia-Pacific Technical Ranking, the Total EM Technical Ranking was up only +6.0% to 245.5 from 231.5 since the last EM blog post. Country ETFs.
The change from week to week in the individual technical rankings
Five emerging market ETFs recorded an improvement in their individual technical ranking (“TR”), one remained unchanged (excluding ETF VanEck Vectors Russia (RSX) which was halted for months trading) and fifteen saw their TR fall. The average TR loss over the week was -2.61″ handles. The best week-over-week TR gain was the Global X FTSE Greece 20 ETF (GREK) whose TR rose 3.5 “handfuls” to 9.5 from 6. Although it n increased by only a “handful” of TR, I chose to highlight the iShares MSCI Turkey ETF (TUR) not only because it has the highest TR “score”, but also because of its superior relative strength, as evidenced by the relative TUR/EEM ratio in the chart below. Readers will note that this is a recurring theme that will come up again later in this blog post (see Relative YTD Performance).
JThe technical condition factor has changed in the last week and the previous 8 weeks
There are eight Technical Condition Factors (“TCF”) that determine individual TR scores (0-50). Each of these 8 ask objective technical questions (see the spreadsheet posted above). If a technical question is positive, an additional point is added to the individual TR. Conversely, if the technical question is negative, it receives a “0”. A few TCFs carry more weight than others, such as the Weekly Trend Factor and the Weekly Momentum Factor in compiling each individual TR of each of the 22 ETFs. For this reason, the Excel sheet above calculates the weekly reading of each factor as a percentage of the possible total. For example, there are 7 considerations (or questions) in the Daily Momentum Technical Condition Factor (“DMTCF”) of the 22 ETFs (or 7 X 22) for a possible range of 0 to 154 if the 22 ETFs had met the criteria of the DMTCF. the reading would be 154 or 100%. Last week saw a reading of 37.01% in the DMTCF for the week ending September 23, or 57 out of a possible total of 154 positives. This is down from the week ending October 7, when the DMTCF scored a reading of 57.14%. A technical conclusion would be that if the DMTCF reached an extreme between 85% and 100%, it would suggest that a short-term overbought condition was developing. Conversely, a reading between 0% and 15% would suggest that an oversold condition was developing. In the week ending September 23, the DMTCF was at 5.84%, suggesting that a short-term oversold condition had developed. As a confirmation tool, if all eight TCFs are improving week over week, more of the 22 ETFs are improving internally on a technical basis, confirming broader market movement (think to an advance/decrease calculation). Last week, six TCFs fell, one rose slightly (On Balance Volume TCF) and one remained unchanged.
The EEM with the Total ETF “TER” ranking overlaid
The Total ETF Ranking (“TER”) indicator is a total of 22 ETF rankings and can be considered a confirmation/divergence indicator as well as an overbought and oversold indicator. As a confirmation/divergence tool: If the broader market, as measured by the iShares MSCI Emerging Markets Index ETF (EEM), continues to rally with no proportional movement or upward movement in the TER, the further rally of the EEM index is becoming increasingly threatened. Conversely, if the EEM continues to print lower lows and there is little change or improvement in the TER, a positive divergence is recorded. It’s sort of like a traditional A/D line. As an overbought/oversold indicator: the closer the TER gets to the 1100 level (the 22 ETFs having a TR of 50), “things cannot improve technically” and an increasing number of individual ETFs are become “stretched”, plus a chance of a pullback in the ESEE. On the other hand, the closer one gets to an extreme bottom “things can’t get technically worse” and an increasing number of ETFs are “technically washed out”, a measurable bottom is about to be in place and an oversold rally will likely follow. The 13-week exponential moving average, in red, smooths out volatile TER readings and is analytically a better trend indicator.
The iShares MSCI Emerging Market (EEM) ETF fell -4.92% over the past two weeks and the TER rose +6.0% to 245.5 from 231.5. Prior to the TER rebound two weeks ago, the TER had reached 206.5, matching the TER low recorded on July 15. So far, this has produced short-term divergence from the new weekly bear market closing low of 34.21 in the EMS at the end of last week (green dashed lines).
It would be premature to suggest that the positive divergence is an indication that the relentless selling pressure that gripped the EM has peaked. That said, it wouldn’t be a stretch to suggest that the EEM is at the very least due to a countertrend price move. An overview of the near-term technical condition follows later in this blog post.
The average “TR” ranking of the 22 ETFs
The Average Weekly Technical Ranking (“ATR”) is the Average Technical Ranking (“TR”) of the 22 Emerging Markets ETFs we track each week and is plotted in the bottom panel of the EEM Weekly Candle Chart shown below. Like the TER, it is a confirmation/divergence or overbought/oversold indicator.
A second divergence in another of my proprietary indicators against price has developed, this time it is the EEM against the ATR. In the week ending September 30, the ATR recorded a reading of 9.39 matching the July 15 reading as prices continued to fall sharply to new lows (green dotted lines), but the red line short-term moving average continues to fall below the long-term exponential moving average. (Blue line). A positive technical feature is that on Friday the EEM bounced off the support offered by the lower parallel (solid red line) of the modified Schiff fork (P1 to P3 red). Aside from this short-term positive technical feature, the mostly relentless downtrend in the EMA since February 2021 is still intact.
Thoughts on the short-term technical state of ESEE
Last Thursday, the EEM opened sharply lower at the start of the trading session, but a price reversal developed and the EEM closed up +0.29% on the day. This price pivot gave rise to the new modified Schiff fork (green P1 to P3). On Friday, an attempt to follow through on Thursday’s price reversal failed and the EEM closed at a new bear market low.
A short-term divergence has developed in my newly created Daily Momentum ETF Emerging Markets Oscillator as price recorded a lower low and the oscillator temporarily held at an upper low (green dashed lines). For this divergence to become certifiable, prices would need to hold last Thursday’s low at 33.65 and possibly a higher in the oscillator. This is probably too much to accomplish in the short term without the EEM taking over the midline resistance (green dashed line) and the Kijun chart (solid green line).
% change in weekly absolute and relative prices of emerging market ETFs*
* Does not include dividends, ETF VanEck Vectors Russia (RSX) is again omitted.
Only four emerging market ETFs were up in absolute value last week. The first two to improve were the Global X MSCI Greece ETF (GREK) up +1.42% followed by the iShares MSCI Turkey ETF (TUR) up +0.97%. These wouldn’t normally be worth highlighting if the average absolute loss of the 21 ETFs tracked wasn’t -2.38%. That said, sixteen ETFs outperformed EEM on a relative basis and five underperformed. Of these five, three were ETFs from Asia-Pacific countries, the most underperforming on a relative basis over the past five trading sessions (-4.52%) was the iShares China Large Cap ETF (FXI ).
The relative performance of the 22 emerging ETFs vs. the EEM index since the beginning of the year*
*Does not include dividends or RSX
Charts courtesy of Optuma, data feed courtesy of Bloomberg Finance LP
Readers unfamiliar with the technical terms or tools mentioned above can avail themselves of a brief tutorial titled Technical Analysis Tools or the three-part fork papers on The Markets Compass website…