Chart of the Day – EEM vs. SPY

by Enis August 31, 2012 12:57 pm • Commentary

Today’s chart should be taken with a grain of salt.  I don’t mean to present it here as evidence that we should be braced for an imminent fall.  But similar to yesterday’s chart, it is just one more reason why I am maintaining my broadly bearish stance.  Today’s chart is EEM vs. SPY over the last 3 years:



The black line is SPY over the past 3 years (values on left axis).  The orange line is EEM over the same period (values on right axis).  EEM has turned sharply lower in the past couple weeks, while the SPY has stayed about the 140 level.  EEM has made a turn lower while the SPY held up on a couple previous occasions in the last 2 years, and I’ve circled those times in red.  EEM peaked in April 2011, slightly before the SPY, and never recovered while the SPY returned to a similar level in July 2011.  More recently, the EEM peaked at the start of March, while the SPY held up until the start of April, before joining EEM lower on the downside.

The current down move is large enough to catch my attention.  Having said that, the EEM has been a clear underperformer since the spring of 2011, while the U.S. stock market has maintained its strength.  There is no rule that says they must trade together.  But I still believe the interconnectedness of the global economy ties markets much more closely together than in decades past.