Emerging markets on sale

There is a saying that one should buy “blood in the streets”. But that doesn’t mean one cannot buy too early.
We are seeing popular protests in places like Turkey and Brazil, and that has driven down the stocks in most emerging markets. Time to buy?
Here is a chart of the EEM emerging markets etf (click for larger image):

While the Dow Jones Industrials is down about 5% from its recent peak, the emerging markets have lost over 20% since their peak in early January. Notice how EEM has dropped below several trend lines and is now trying to hold on to support around $36. The Earl2 is getting quite low, but not showing any signs of turning up yet. This means the eventual bottom could still be a few months away. If the $36 level doesn’t hold, then look for a revisit of the October 2011 lows at ~$34. So, I would be patient if you plan to buy EEM.

A quick look at some markets that are currently in the news.
This is TUR, the Turkey etf (click for larger image):

This market is correcting from the huge bull market it had last year. Here the Earl2 (orange line) is showing first signs of stabilizing, which means that the worst could be over for Turkey. There is a major support level at ~$55, so one could start some careful buying with a stop-loss just under $53. If this support gets broken, then look for $45 and next $40.

And here is BRF, a Brazilian small cap etf (click for larger image):

Has been weak for several years already, and may now be in the final selling climax before printing a major bottom.
Here the Earl2 is also falling into the region that typically marks important lows, but we see no signs of stabilization yet, so also for Brazil I would wait.

Investing is a game of patience, and there is no need to try to catch falling knives. In the charts I have marked the recent buying opportunities with green arrows, and as you can see, when the Earl2 turns upwards from a bottom there is usually still enough time to get on board at low prices. Most of these charts are likely to show more attractive setups one or two months from now.

Stay tuned.
Danny

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