Why EEM ETF Should Continue To Drag Lower

EMERGING MARKETS

 

Investing in emerging markets is relatively new to me. As someone born outside of the United States, I’m well aware of amazing amount of development and economic growth that is taking place in countries all over the world. How many Americans know that African countries are the fast growing countries in the world today? I bet only a handful could tell you that.

When it comes to the stock market, the best sector etf for emerging markets in my opinion is EEM. The describes itself by saying…

Within EEM, the current top 10 countries in the fund are.

Hong Kong 22.08%,

Korea, Republic of 12.23%,

Taiwan, Province of China 11.00%

India 8.95%

The scary thing above the above is the fact that EEM is not positioned to benefit from the countries that have the safest path to financial empowerment. Hong Kong, which the fund is heavily invested in, is the biggest real estate bubble in the world. You can learn more about that HERE.  Hong Kong’s private-credit-to-GDP ratio has grown from about 170% to over 300% in 2018.
Yes, believe it or not, Hong Kong, which is the biggest part of EEM is actually financially structured WORSE than it was in 2008.

The Position

This trade has taken in $160 in credit spread over 8 days. It is an incredibly risky trade that I believe will land in my favor due to the inability for EEM to rally here on the back of a US Federal Reserve rate cut, Korea’s debt situation and the massive exposure to China. South America, which is included in the fund on a very small scale is discussed on thoroughly on this page.
EEM is unable to stay above the 60 RSI and that level has now turned into a strong resistance level. A break below 40 RSI could spell disaster for EEM in the short term.

The Reason

No significant change will take place in EEM regardless of the upcoming rate cuts that will place this stock out of the money.

The Risk

Nearly $500 is being reserved for this EEM position. I will be forced to close this trade early if it goes wrong during July 29th to August 2nd of 2019. A longer term trade will be evaluated in the near future.

Planned Result

 

I am seeking 50% of net credit or $80 from this EEM trade. I should be able to close this trade on Weds, July 31st of 2019.

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