Some technical analysts keep an eye on the relative performance of exchange traded funds tracking emerging markets to get a sense of risk appetite in the markets.
Investors piled into emerging markets ETFs in October such as Vanguard Emerging Markets (NYSEArca: VWO). [Emerging Market, High-Yield Bond ETFs Lead October Inflows]
Emerging market funds have outperformed the S&P 500 since the bounce from the early October low. The iShares MSCI Emerging Markets (NYSEArca: EEM) was up 20.7% for the month ended Nov. 3, compared with a 14.8% gain for SPDR S&P 500 (NYSEArca: SPY).
However, emerging markets are trailing U.S. blue-chip stocks by a wide margin this year. The S&P 500 is up 1.8% year to date, while the emerging market ETF is down 12.1%, according to Morningstar.
“The iShares MSCI Emerging Markets has been underperforming the U.S. market since October last year. In September of this year a monster head-and-shoulders relative top was activated and that has yet to fulfill its bearish potential,” said Tarquin Coe, technical analyst at Investors Intelligence.