Emerging Markets

Just like GLD before Friday's flight to safety, there was a notion in the market that all it could do was go up and the JPM Silver Short Squeeze, if you listened to the advocates, your SLV shares should be worth $50 now. The same occurred with Emerging markets, but unlike GLD and SLV where I was content to let the charts tell us, I was not onboard the emerging market trade at all and the reason why, America's Quantitative Easing is exporting inflation into economies that may be growing, but are not stable and that on top of food inflation and shortages as we have seen in recent months by demonstrations and riots across several continents.


Now we have the Tunisian and Egyptian situation. 


Brief update-

Saudi Arabia is next as protests in the Saudi Arabian city of Jeddah are already underway, there's even a twitter link to the protest there so you can follow the developments.

Kuwait is paying it's citizens a sum of $4 billion of free food for 14 months plus the equivilent of $3572 in cash until March 31 2012. Inflation in Kuwait was up to 5.9% in November, food prices rose 12.3%!

http://news.yahoo.com/s/afp/20110117/wl_mideast_afp/kuwaiteconomygrant_20110117085151

Libya which is between Tunisia and Egypt has declared a “State of Emergency”. They have set up checkpoints and called on security forces to disrupt any gatherings of people in public or government areas. Note the common thread, Ben Ali in power for 23 years, people repressed, poor living standards, runaway inflation especially on food, same in Egypt,with Mubarak in power 30 years, Gaddafi worse situation then Egypt, in power 42 years. And now the Royals of Arabia, not exactly low living standards there or in Kuwait.

We also have reports of protests in Jordan and Syria has shut down internet services. We even have protests in Eastern Europe.

Shipping Giant MAERSK has suspended Egyptian shipping operations and closed their Egyptian offices. How long the Suez stays open and operating safely, who knows? 

The bottom line is something I alluded to with regard to 2011, "We are going to see events transpire this year that we never dreamed of in our lifetimes". 

January isn't even over yet and one long standing government has been toppled, another is on the brink and all of the Arab world is in serious danger as THIS is exactly what Osama Bin Laden wanted to create. Don't think these well organized groups aren't already taking up positions such as Hamas sending armed men through the unprotected Egyptian border to link up with the Muslim Brotherhood.

And we should invest in Emerging Markets the pundits say?

Again, one of my favorite trades, EDZ-a triple leveraged short play on emerging markets that has a very bullish chart and broke out Friday, it's pulled back today.

 From left to right on the daily chart-a bullish Descending Wedge that broke out and formed a base. MACD taking up a solidly bullish position and volume was high on last Friday's breakout which I believe was premature and set about by events across the world, I'll show you why, but we have a pullback today and it's holding support, it's not a bad area to consider the trade.

 Here's the hourly chart, you can see a red negative divergence sending prices lower where they are accumulated at support both times it is hit.

 15 min chart shows smaller negative divergences pushing price off resistance down lower where it continues to be accumulated, that was until last week, there's a small patch of accumulation and a breakout. I'm not sure those that are accumulating were ready for the breakout, they may have wanted to accumulate more shares, but seeing it was coming, it looks like they grabbed what they could and fast on 1/26-1/27/2011

Now on the pullback we see a positive divergence in the 1 min 3C chart, it seems today is being accumulated. There may be some lower prices to accumulate more, or there may not, I think world events are now in charge of the trade. However, so long as it holds support from the breakout area, I'm okay with the trade personally-that's around the $21.50-$21.70 area. The pattern implied target could be as high as $60-$65 on an established trend. I still like this trade a lot. Note that the longer term Trend Channel stop is around $19.70