Buy Emerging Markets, But Carefully

emerging marketsSy Harding: Emerging markets were under pressure all summer from fears that the U.S. Fed would begin to taper back its QE stimulus. More recently, it was widely expected the battle in Washington over raising the debt-ceiling would add to the selling pressure.

However, charts reveal what a market is actually doing, not what people think it should be doing. And in reality, emerging markets in general have been rallying off an oversold condition beneath 20-week moving averages, even as the U.S. market was pulling back from its September peak on the new debt-ceiling worries.

Essentially, emerging markets have been struggling since 2011. Many have been in bear markets, with declines of as much as 35% and with only bear market rallies since 2011.

Given the risk in individual countries these days, we prefer a diversified emerging-markets mutual fund or etf, rather than choosing individual countries or individual stocks. And given the potential over-valued condition of the U.S. market, and its proximity to five year highs, there may well be more potential in markets that have already experienced bear markets, and are rallying off lows.

Most recently, technical indicators had been on a sell signal for the Vanguard Emerging Markets ETF (NYSEARCA:VWO), since its peak early this year. In its tumble from that peak it fell 18% to its summer lows.

However, it found solid trendline support again. Our technical indicators triggered a new intermediate-term buy signal. And it launched into a new rally.

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