Emerging Markets ETF (EEM) moving into critical tests of support

Following up on the emerging markets review we initiated a couple of weeks ago - sure enough, EEM (the emerging markets ETF) did encounter resistance at its 200-day moving average and dropped down away from it. Initially it found support at the Bollinger Band (BB) midline and tried again for the 200-day moving average, then dropped again. It can be interepreted as a consolidation before trying again, and that's consistent with the BB's now closing toward this small range. Now the lower Bollinger Band is at 25.49 on the daily chart (below), and can provide support if EEM needs it while remaining above the still-rising 50-day moving average. The indicators, not surprisingly, look consistent with the halted momentum.

Prospects for EEM may well be consistent with the several options for the U.S. equities markets that I outlined in my post earlier this morning. The most dire would be if EEM has completed a wave 4 up that implies it's going to roll over to new lows. I haven't independently verified whether EEM has the same Elliott Wave count possibilities on the big-picture, as for U.S. equities, but the weekly chart of EEM (also below) looks similar enough to suggest it's a valid comparison. Notice on the weekly chart that the 50-week moving average (MA) recently crossed under the 200-week MA. That's typically a bearish cross with longer-term consequences. It's not uncommon when such a bearish cross occurs that price will jump up when, or shortly after, the cross-under occurs ... followed by resumption of the downtrend. If that's the case for EEM, then investors should brace for more downside to come.

Obviously, remaining above the 50-day MA will stave off such bearish possibilities, so that's a line that EEM investors should keep their eyes on. If the EEM is able to get above its 200-day MA, that will substantially improve its prospects, and provide an additional line of support. It's also evident from the indicators that EEM investors shouldn't feel complacent about getting that support.