|In my last article, "Is This 'Make It Or Break It' Time?" I examined the bear flag patterns in the Dow industrials ETF (DIA) and Dow transports ETF (IYT) compared to the MSCI Emerging Markets ETF (EEM) and discussed why the relative weakness of the latter was cause for concern. |
Figure 1 shows the relative performances for the Nikkei 225 (gold), the Shanghai Shenzen Composite (red), the Indian NIFTY (green), the German DAX (purple), the Brazil Bovespa Index (teal), and the US Commodity Research Bureau index (lime green) over the last three years.
|FIGURE 1: SIX-INDEX COMPARISON. Six indexes are compared in this weekly chart from September 2008 to the present.|
|Graphic provided by: Chart courtesy www.GenesisFT.com.|
|As we see, the CRB index is by far the strongest performer and the Nikkei 225 the weak sister, having taken out the 2010 lows and looks headed for its 2009 lows. Next weakest are the German DAX, as well as BRIC powerhouse indexes, the Brazil Bovespa and the Indian NIFTY, both of which have also taken out their 2010 lows. Meanwhile, the Shanghai Composite, still well off its 2009 highs, continues to struggle as well.|
|From their 2010-11 highs, the DAX has fallen 33%, the Nikkei is down 25%, the NIFTY off 25%, the Bovespa down 24%, the Shanghai down 22%, and the CRB is off 6.4%. This compares to a drop of 15% for the Standard & Poor's 500.|
|This situation should concern global investors and traders since emerging markets, especially Brazil, China, and India, have been logging impressive GDP growth and driven global economic demand. As leading indicators of economic activity, these stock indexes are prognosticating more weakness ahead.|
|Much of the global recovery has been due to emerging market strength. If that continues to erode, it will create an even greater drag on the struggling recoveries in Europe and North America, and their stocks markets will suffer further setbacks.|
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