Back in early June, we featured the VanEck Vectors Emerging Market Local Currency Bond ETF (NYSE: EMLC). At the time, the Chinese looked ready to negotiate with the United States in what many investors hoped would be a blockbuster trade deal.
What resulted from the talks (or lack thereof) was far less exciting.
In fact, nothing really happened at all. It seems that Xi Jinping was simply trying to cool tensions both domestically and abroad after hostilities hit a fever-pitch in May.
But that didn’t stop EMLC from skyrocketing past our hypothetical entry point:
Since then, EMLC has been a stone-cold winner – outperforming almost every ETF on the block.
Even other emerging market ETFs.
But now that the dust has settled and emerging market securities appear to be cooling down, we’re starting to see reversal setups to go short.
Just not with EMLC. At least, not yet.
However, one ETF caught my eye this morning that we absolutely need to talk about, because time could be running out on what might end up being a very unique trade.
In the weekly candlestick chart above, you can see that the iShares MSCI Emerging Markets ETF (NYSE: EEM) hasn’t done quite as well as EMLC.
It’s not a bond ETF like EMLC is and because of that, it didn’t get the “boost” that EMLC enjoyed amid freshly stoked worldwide recession fears.
That doesn’t mean EEM isn’t worth trading, though, as over the last month, an interesting short setup appeared on the chart.
The current weekly candlestick just passed below the last four candlestick lows and the stochastics remain high despite the recent selling. Even better, EEM just bounced off an upper trendline that was established back in late April, showing us that it’s likely to trade below the lower high from June.
And while I believe this ETF has plenty of downside potential, it’s also approaching a future breakout to the upside OR downside.
Meaning that this isn’t just a short setup, but one that includes a future trend reversal or continuation.
Making EEM an absolute “unicorn” trade that you seldom see.
Should a breakout occur at the lower trendline, it would make sense to simply hold a short position until the bleeding stops. Alternatively, if we see a breakout past the upper trendline, reversing into a long position could generate some serious rapid-fire gains.
Either way, there’s plenty to like about the current EEM setup. Once a breakout happens – and it WILL happen – I might even change my opinion of it from “like” to “love”.
Because there’s nothing quite as satisfying as generating profits off two consecutive trades, potentially heading in opposite directions.
We were right about EMLC last time we focused on emerging market ETFs. Will lightning strike twice?
From what I see here, I’d say yes.
And in a few weeks, it might even happen a third time when a breakout sends EEM flying off the handle.
