Chart of the Week - Technical patience in emerging market equities

Callum Thomas

Topdown Charts

Emerging Market Equity Technicals: Today we’re focusing on the local currency version of the MSCI EM index. This is so we can see what is going on in the underlying equity market independent of the action in EMFX (which has itself been very weak vs the US dollar recently). 

Looking at this version of the index helps us see the true picture of technical strength/weakness.

I’ve also included the 200-day moving average breadth indicator, using local currency indexes for each of the countries that make up the index. Again, this is so that we can peer through and detect emerging signs of strength/weakness beyond the headline index.

The key standout in this chart is the index dropping to that lower uptrend line within its longer-term uptrend channel. This has been a key zone for the index to find support in recent years, but it also serves as a risk trigger in that a breach of that line will open up the prospect of further downside.

Meanwhile, the breadth indicator is showing widespread weakness across emerging markets, which along with macro headwinds and the downdrafts in EMFX could well tip the odds in favour of a further push to the downside in the headline index.

While the breadth indicator is close to levels most would consider “oversold”, a more powerful signal would be if it dropped to zero and then turned back up. 

While this chart carries some cause for optimism (we are clearly well progressed in the EM bear market), the main message remains one of caution and patience.

Specifically, I will be looking for improved technicals (not yet), more compelling valuations (not yet), more fulsome washout in sentiment (not quite), and a shift in the macro currents (also not yet). So be sure to follow for updates on all of this!

Key point: EM equity technicals suggest caution and patience for now.

Key point: EM equity technicals suggest caution and patience for now.

NOTE: this post first appeared on our NEW Substack: (VIEW LINK)

Best regards,

Callum Thomas

Head of Research and Founder of Topdown Charts

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Callum Thomas
Head of Research
Topdown Charts

Callum is Head of Research at Topdown Charts. Topdown Charts is a chart-driven macro research house covering global Asset Allocation and Economics.

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