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Wednesday, October 17, 2012

EEM ~ Weekly H&S and Daily H&S Patterns

Below are a Weekly chart and Daily chart of the Emerging Markets ETF (EEM).

A very large Head and Shoulders pattern has been building on the Weekly timeframe since September 2009. Price is retesting a zone in the vicinity of the right shoulder and appears poised for another attempt at a break above.

Within the right shoulder is another smaller Head and Shoulders pattern, which has been building since August 2011 on the Daily timeframe. Price is retesting the September 14th "shooting star," the high of which represents the top of the right shoulder (which is still forming) on this timeframe. Furthermore, a bullish moving average "Golden Cross" formed two days ago, and, once again, price closed just above the 50% Fibonacci retracement level today. Volumes have picked up a bit over the past couple of days.

If price breaks and holds above 43.00, the next level of resistance is the top of the Daily "head" and Weekly "right shoulder" at 44.91 (if it can make it above the 60% Fib level at 43.93).

You can see how EEM is performing compared to the BRIC countries, as shown on the 6-Month Daily charts below. If we see India and China weaken, we may see the others, including EEM, follow suit. All five bear a close watch over the next few days, as any weakening, in the near-term, may negatively affect U.S. equities.