Courtesy of Doug Short
Last week I shared an indicator from Chris Kimble — a chart that divides the iShares Emerging Markets Index (EEM) by the iShares MSCI EAFE Index (EFA), which is a surrogate for developed markets excluding the U.S. and Canada. The indicator, Chris suggested, is flashing a warning signal.
I’ve received a number of emails asking more specifically about the relevance of this indicator for the U.S. markets. Below is my Stockcharts.com EEM/EFA chart with the S&P 500 in the background. The timeframe is from the inception of the EEM/EFA data in 2003. I’ve included the 200- and 50-day moving averages to help clarify the indicator trends.
What conclusions can we draw? Chris’s original post was essentially a “heads up” warning that global trends could be on the threshold of change. The data series doesn’t extend back very far, but the S&P 500 overlay suggests that the caution alert also applies to the U.S. market.
