iShares MSCI Emerging Markets Indx (ETF) (EEM) — Slowing growth in China, falling crude oil prices and the rising U.S. dollar have conspired to take down EEM, with the ETF off 20% in the past year and more than 30% from its 2011 highs. But since hitting a low early this year, EEM has bounced. Now, a pullback could offer a good opportunity to buy shares.
The top 10 holdings in EEM are Samsung Electronics Co Ltd, Taiwan Semiconductor Mfg. Co. Ltd. (TSM), Tencent Holdings Ltd, China Mobile Ltd. (CHL), Naspers Limited, China Construction Bank Corporation, Industrial and Commercial Bank of China Limited, Alibaba Group Holding Ltd (BABA), Hon Hai Precision Industry Co., Ltd. and Infosys Ltd (INFY).
Many of these international companies do not trade on the U.S. markets, so EEM provides a way to play the emerging market theme while reducing risk compared with individual foreign companies.
Turning to the chart, after a big run off the 2009 lows, EEM topped above $50 in May 2011. The decline that followed, which formed a major bearish resistance line, found a bottom below $28 in late January.
EEM then reversed from that low, and on March 1, shares broke up through the intermediate resistance line at $31. From there, they formed a bull channel, which pierced the 50-day moving average in late February and the 200-day moving average on March 30.
The ETF is now in an intermediate uptrend supported by high-volume buying and a new buy signal from the MACD indicator. However, the recent rally has left EEM overextended. Thus, traders should use limit orders to buy shares under $33 with a target of $40 — the bearish resistance line. If successful, this trade will result in a gain of more than 20%. EEM also offers an annual yield of 2.3%.
