Technical analysis (TA) is a popular search term and strategy for many investors. Technical analysis is a trading discipline designed to evaluate investments and identify potential trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security’s intrinsic value, technical analysts concentrate on price patterns, trading signals and various other analytical charting tools to evaluate a security’s strength or weakness.
According to the Wagner Business Review, a group who specializes in technical analysis, emerging markets may be a sector for investors to look into, as the Emerging Markets Ishares MSCI ETF (EEM) has watched the Triple Exponential Moving Average (TEMA) of it’s share price, a potential signal that strength is building for the upward trend of the security, trend higher over the past 5 session.
A moving average is a time-honored indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random short-term price. TEMA is a unique combination of a single exponential moving average, a double exponential moving average, and a triple exponential moving average that provides less lag than any of those three individually. It can be used instead of traditional moving averages for smoothing price data or other indicators. TEMA can also function as a momentum indicator. Consistent negative values suggests momentum is decreasing while a positive trend suggests increasing momentum.
Analysts have already been touting emerging markets as something for an investors to monitor. With the Federal Reserve looking to potentially cut rates, and Trump proclaiming the likelihood of a trade deal, emerging markets could be ripe for investment.
“EM’s discount to developed markets has been relatively attractive. At the same time, earnings expectations have improved and actually look favorable for EM,” Direxion Investments noted in a 2019 Relative Weight Spotlight. “Of course, if the Federal Reserve feels that the data to raise rates faster than expected, EM would suffer. Overall, if some of the concerns, such as trade or idiosyncratic issues do not come to fruition, investors may jump into EM equities, especially with the attractive relative valuations. Net-net, the direction of global growth will likely remain the greatest driver of performance with EM outperforming if growth ticks up and DM doing well with slowing growth.”
For investors looking for the continued upside in emerging market assets, whether driven by a weakening USD or continued developments around trade, the Direxion MSCI Emerging Over Developed Markets ETF (NYSEArca: RWED) offers them the ability to benefit not only from emerging markets potentially performing well, but from emerging markets outperforming developed markets.
Conversely, if investors believe that resolutions to the big issues impacting sentiment today are in motion, the Direxion MSCI Developed Over Emerging Markets ETF (NYSEArca: RWDE) provides a means to not only see developed markets perform well, but a way to access a convergence/catch-up in performance of DM relative to EM, a spread that has clearly widened over the past 6 months.
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