EDZ-Leveraged Short on Emerging Markets

I've talked about EM and the many reasons I think a short on these emerging markets will make sense. I won't  get into all of it again, but I will tell you what I've discussed with members via email re: EEM (long emerging markets ETF). Six months or so ago, EM was all the rage, I can imagine portfolio managers talking their clients into EM portfolios, since then EMs have aggressively defended the Fed's main export to them... inflation which diminishes the EM trade.

However, EM trades were strong into the end of Q1 and it was somewhat logical to me. Q2 prospectuses and Q1 reports come out after the end of Q1 (March 31st), therefore it was very important to many funds that talked up EMs for them to perform well into the end of the quarter. However, I believe fund managers know the problems associated with emerging markets and I believe they are rethinking the trade. However, if you were paying 20-40% of your gains to a hedge fund manager, you expect performance and if you were aggressively pitched emerging markets 6 months ago, it wouldn't look very good for the fund managers to have sold them shortly after selling you on them. What I mentioned over and over again was this, "What a fund manager wants in their portfolio and what they must have in their portfolio are not always the same, thus once Q1 is over, they are free to sell EMs aggressively, it won't be reported for another 3 months and in that timeframe, should EMS fall significantly for fundamental reasons and because the herd is moving out of them, then it's easier to break that to your clients without seeming wishy-washy (pitching EM and selling them the same quater would seem wishy-washy). So I told members to watch EEM/EDZ right after Q1 ended through April. Interestingly, it looks like this may be what's going on.

Take a look at EDZ which is the leveraged short ETF on emerging markets and also note the dates.

 EDZ (short EM) starting lateral movement from a steep fall around April 1st

 60 min 3C positive divergence starting April 1st

 EDZ 30 min and TSV 55 (long term)going positive into April

 10 min 3C and price appreciation in EDZ in early April

 5 min positive EDZ divergence

 Here's a 1 min chart suggesting a possible slight pullback in EDZ (which would be welcome if you were interested in buying EDZ)

My X-over screen on a 60 min. chart, the possible pullback area would be to one of the two moving averages.

Now compare to the Bullish Emerging Market's ETF-EEM

 a 60 min negative divergence starting around April 1st.

 30 min 3C negative divergence in the same time period.

 10 min negative divergence and price falling.

And the same X-over system showing nearly the exact opposite signal.

For me, the theory seems to be working out, I like the idea of shorting emerging markets, if you are interested in the trade, you may want to phase into it or wait for a pullback for a better entry.