Are Emerging Markets Cracking?

I added a bit to my short position in emerging markets on Thursday. I have written about an emerging markets short here, here, here, and here. I wanted to add more, but the market ran away from me. Plus, I feel that something major is going to happen soon, either to the upside driven by Fed or government action, or to the downside driven by Fed or government inaction.

The MSCI Emerging Markets index broke through support at 1180. (The Bloomberg does not show the wild dip over the previous few weeks so I believe this chart is off.)

click to enlarge

Support is at 1100 then at 1000.

The economy is going into a recession and emerging markets are a high beta proxy on investors' appetite for risk. Regardless of the growth rates and the current fundamentals, emerging markets will get whacked as developed markets crack.

I play this trade by purchasing ProShares UltraShort Emerging Markets ETF (EEV), which inversely tracks the MSCI Emerging Markets index by 200%.

click to enlarge

Comments

[A.S.D.:]

What now?

2008 Jan 23 09:24 PM

[User 107684:]

hai toro...great man..you shorted the EMs couple of weeks ago and it went down.. you are lucky.. but can you explain what is meant by shorting the whole emerging market? how could one do that?

2008 Jan 29 04:29 AM

[User 107684:]

is there any short term chance of a dollar bounce back? when will the demand for US assets and dollar rise again? ca...

2008 Jan 29 04:33 AM