In a recent scientific study, customers were asked to taste different jams at the supermarket. In one test the shoppers were provided six different jams to try. 40% of customers stopped to taste and 30% of them bought one of the jams.
One week later the same test was set up, and shoppers this time were given a choice between twenty-four different jams. This time 60% of customers stopped to taste but only 3% of customers decided to buy, just too many choices.
The paradox of choice can often frustrate us to a point of avoiding a decision.
This can be similar in the finance world where we have thousands of mutual funds (NASDAQ:FMAGX), ETFs (NYSE:SPY), and equity choices.
Lucky for us, we have tools such as focused financial analysis that helps whittle down all of these choices before we have to take the final step of “tasting”. Unlike jams, we don’t have to try it before we know we like it.
Worried about the Cliff? Here’s Another Choice
A great thing about the financial world we live in today is if you don’t like what’s going on in one part of the Earth, like the U.S.’s laughable Fiscal Cliff fiasco, then it is very easy to move your money elsewhere, hedge the exposure, or better yet, even capitalize on it. Paradox of choice aside, today’s plethora of ETF options makes this relatively easy, especially with focused and technical analysis.
Right now the iShares MSCI Emerging Markets ETF (NYSE:EEM) offers an intriguing bullish trade setup and could be used to offset the fiscal cliff risk in the U.S right now.
EEM’s holdings represent 18% China (NYSE:FXI), 15% South Korea (NYSE:EWY), 12% Brazil (NYSE:EWZ), 11% Taiwan (NYSE:EWT), and 8% South Africa (NYSE:EZA) and are located just about as far from the Fiscal Cliff as you can get.
Beating the Paradox of Choice
More positive than its overseas exposure, it looks great technically. Technical analysis is one of the tools we use to help us find the “jams” we actually want to buy.
In our 12/2 Technical Forecast we alerted subscribers:
“Although EEM was in a confirmed downtrend since 2011 and may be forming a head and shoulders pattern, but it recently has rallied beyond resistance (down sloping blue trendline), putting the downtrend into question. Aggressive traders can buy now with the expectation of a breakout and a stop below the rising red trendline. A breakout of recent highs at $42.50 would be the conservative short term buy signal.”
Here is the chart that accompanied it along with the technical formations, including the blue downtrend line that broke, the potential head and shoulders pattern, along with the near term resistance at $42.50 (horizontal red trendline).
EEM has since broken out of its upper red resistance trendline at $42.50 and now sits at $43.63, up over 4% since our 12/2 recommended setup.
Additionally, EEM has also now closed above the breakout for two straight weeks providing confirmation the trend should stick. Conservative investors can likely still buy on the next weekly pullback and capture the uptrend in emerging markets with a stop just below $42.50.
If you are as sick of the fiscal cliff as we are, there are many ways to mitigate it by avoiding the noise and focusing attention elsewhere, like on high probability trading setups.