Short-Squeeze: Emerging Markets

Bear Market Behavior

Two ways to look at the action.

First: Those late to shorting the Emerging Markets (EEM) are going to get whacked.

Second: Those shorts properly positioned, are going to take a hit but will have an excellent opportunity to move stops after the smoke clears.

Not addressed, are those who think this is an opportunity to go long.

It’s about 25-minutes after the open. The daily chart of EEM, below shows current action.

Emerging Markets, EEM Daily

It’s clear that price action is attempting to break through the trend.

This type of action is typical bear market behavior.

Bear markets are all about price destruction along with an overall downward direction.

The market’s objective is to make sure as many as possible are thrown off the main trend (stopped out, busted out) and not able to participate.

Summary

If the downtrend is still in-effect, EEM price action will stall and then ‘hurry itself’ to get back into the trend … after the shorts have been cleared out.

That short clearing could be just hours or even days.

At this juncture, the current stop for EDZ-22-01, remains at 11.96, as detailed in this post (not advice, not a recommendation).

Update: 10:32 a.m., EST. Position stopped out at 11.96 and posted an overall gain of 8.33%

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

TSM Collapse, Dead Ahead ?

Sell-Off, Has Been Orderly … So Far

Taiwan Semi (TSM) is the largest cap in the Emerging Markets, EEM (ETF) Index.

As we’ll see from a technical standpoint, TSM’s posted a massive bearish divergence.

That divergence is now being confirmed with price action breaking lower.

As shown below, price action’s launch from a low of 5.83, in November 2008, to a high of 145.00, on January 13th, this year, has been stratospheric; over 2,595%.

However, for about eleven months, the last part of that action was sideways. Then, a Wyckoff up-thrust during the middle of January and reversal lower.

That’s where we are now.

Taiwan Semi (TSM) Weekly Chart

Highlighting the divergence.

The problem or the benefit (depending on long/short), such reversals take much longer to play-out, than anyone expects.

Moving closer in, on the weekly.

At this juncture, TSM’s following a trendline lower that’s declining at approximately – 95%, annualized.

Volume for the week increased from the week prior, which increased from the week before that, also increasing from the week before.

Downward pressure continues; TSM’s down -30%, from its all-time highs.

Emerging Markets, EEM

When looking at the weekly chart of EEM, we can see the downward effect of TSM on this index.

Drilling down into the daily chart of leveraged inverse fund EDZ and compressing the vertical scale, one gets a sense for the potential of this move.

EDZ Daily (vert. scale compressed)

As a courtesy, entry dates, prices and current stop are listed (not advice, not a recommendation).

TSM & EEM, (EDZ-22-01) Targets

Coming up in another update, more specific (Fibonacci) targets for potential exit of the EEM short via EDZ.

At this juncture, an obvious (capital preservation) exit would be decisive penetration of the trendline shown or hitting the current stop; not advice, not a recommendation.

Summary

One of the hardest things to do for amateur and professional alike, is nothing.

That may be where we are with TSM, EEM and EDZ. The short position has been opened; stops and trend identified.

Now, the waiting.

As Livermore said nearly a century ago, it’s the waiting (not the thinking) that made him the money.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

Does The ‘Bounce’ Stop Here?

EEM, Closes The Gap

Active Short: EDZ-22-01, Update

Breadline

This post, highlighted the reasoning for a sustainable breakdown in the Emerging Markets, EEM.

The leveraged inverse vehicle for that index is EDZ.

Up until about two weeks ago, that fund was a low volume wall-flower.

That’s all changed … at least, for now.

The ten-day trading period from February 1st to 14th, had average EDZ, volume of 251,000 shares/daily.

Fast-forward, ten days from February 24th, to today, March 9th; average volume is up over 280%, at 955,000 shares/daily.

EEM Weekly Chart

The weekly chart’s orderly lower-trending price action broke to the downside during the week of February 25th.

Inverting the chart and noting the apparent trend-line shows this week’s action is closing the breakout gap and testing the trendline.

Closer-in on the (inverted) daily shows just how many hits there are on this trend; looks like about eight so far which includes today, March 9th.

Positioning

This earlier post showed how I worked the sector via inverse EDZ (not advice, not a recommendation).

Depending on tomorrow’s price action, today may have been another low-risk opportunity for entry.

If EDZ makes a new daily high at the next session, the stop, identified previously (EDZ: 10.90) will be moved up to 11.96 (not advice, not a recommendation).

Opinion

This article says, ‘limit down‘ is coming; the opening market drop will be so large, it’ll be ‘limit down’, not allowing sells (for a set time period).

If that happens, the next day is likely to be the same and the next after that.

This is how fortunes are made and destroyed.

A good documentary on that process can be found here (Floored, time stamp 29:04); back then, it was a limit up.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

Dent In The Gold ‘Armor’

Sometimes, It’s Just One Sentence

‘If Russia’s commodity sales decline, it could sell-off some of its gold reserves to pay for war in the Ukraine.’

That, my friends may be the clue, the dent, the chink in the armor.

What if everybody (i.e., other nations) winds up in a similar spot for various reasons … being forced to sell off gold reserves?

It’s early in this session and gold’s attempting to breakout above well-established resistance.

For GLD, the 76.4%, Fibonacci retrace is near 185.50 – 185.60.

Currently GLD, has posted an intraday high of 185.40.

Gold (GLD), Daily Close

Getting closer in on the action (below) we see GLD, at or near 76.4%, retrace, attempting to break through established resistance at the same level.

We’re obviously at the danger point.

It’s time for GLD, to decide on its next move.

Strategy Note

From a strategy standpoint, we can almost feel the pressures. Emerging Markets (EEM) continues to decline with TSM, leading the way.

Obviously, downward pressure.

Then, we have upward pressure on the metals (less so, silver) and the big question is … Is this pressure temporary?

Are all sectors (ex. food/energy) in decline with gold/silver just the last ones to reverse?

Price action itself will let us know.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

Taiwan Semi … On The Edge

Down On Heavy Volume

Taiwan Semi (TSM) is the heaviest weighting in both the Emerging Markets, EEM, and the SOXX.

Those indexes were down sharply on Friday with EEM, losing just over -2%, and the SOXX down -2.65%.

Even though the SOXX, was lower in percentage terms, it’s EEM, that may be entering free-fall territory; led by its largest component, TSM.

World (planned) Instability

At this point, that’s an understatement.

There’s no telling if somehow, Taiwan (the nation) is going to be dragged into the fray.

Note: As this post was being finalized, we have this, just out.

The good news (sort of) is from a Wyckoff analysis standpoint, we don’t have to know the inside scoop on who or what has plans to do next.

To be very blunt, those in the know are so arrogant and greedy, their actions are going to show up on the tape.

That same arrogance and greed was rampant in Wyckoff’s day … why should it be any different now?

Taiwan Semi (TSM) Weekly Chart

As we can see, TSM closed the week just below support on very heavy volume.

Downward thrust pressure is immense.

The coming week could see an attempt to ‘relief rally’ or we could just continue lower in earnest.

If TSM breaks lower, it’s in ‘free-fall’ territory as there’s no real support until the 80-area … down nearly – 24%, from current levels.

Leveraged Inverse Fund: EDZ

As covered earlier, the leveraged inverse fund EDZ, has picked up in volatility as well as trading volume.

The daily (close) chart showing the breakout is below:

The second chart documents trade entries and current stop location (not advice, not a recommendation).

The entries may look to be at ‘elevated’ levels but recall in the last report, the market tested its breakdown … tilting probability to the downside (upside for EDZ).

Entries were made at support/resistance trendline break and test … ‘the danger point’

The EDZ, fund typically, is not popular and is normally very quiet; however, that all changed in the past two weeks.

The EDZ, Entry

Let’s dig into the nuances of the entry on the two charts below. From the closing chart above, the entry looks like it’s hanging in mid-air.

Looking the ‘prints’, shows the entries made at (nearly) the lowest risk point(s) possible.

The day prior to the 10.86, may have been the best but recall from this update, the entry was made as price action tested the breakdown of support/trend on the EEM.

The trade plan for the next day (March 3rd) was if EDZ made a new daily high, the breakout is likely underway.

Another entry was opened (mid-session) as price action pulled back from that new daily high (new low for EEM).

Note the stop was originally set at the March 2nd, low of 10.69, then moved up to 10.90, the next day.

If stopped out at this juncture, the entire trade would be at break-even (not advice, not a recommendation).

Note in the charts above, there were several false attempts to break to the upside. Each attempt was followed one or more red bars (candle) that negated the attempt.

The current breakout looks like the real thing but it too, was initially followed by a red candle (February 25th).

In this instance, price action reversed and started making higher-highs and higher-lows.

That was the signal to go long.

Summary:

At this juncture, trade EDZ-22-01, is fully positioned (not advice, not a recommendation).

Anything can happen between now and the open on Monday. However, the power of TSM’s thrust lower suggests downside continuation is a high probability.

Let’s not forget, we’re in a market environment where a ‘fat-finger‘ upset is not just a possibility but highly likely.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279