While attractive in a broadly theoretical sense, the Emerging Markets theme is at great risk due to a possible pending U.S. Dollar raly (for the record, I continue to hold CH… with no intention of selling (or buying more anytime soon, for that matter)). Should the Dollar continue its rally, that would not bode well for emerging markets, which have trended opposite the USD for a decade now (GREEN is Dollar down, Emerging up / RED is Dollar up, Emerging down):
The Dollar is near historic lows and could have a lot of room to run up. It has not yet broken out of its downtrend, but is still at levels that would indicate the upside is much greater than the downside (barring a Weimar-ian collapse in faith). As for the U.S. Dollar, you can see that its near historic lows on its 20 year chart:
Chris Kimble is keeping a close eye on whether the Dollar can break above a 23% retracement of the recent high. I want to see whether the Dollar can break above the dual resistance of a falling trendline and a recent price top:
I’m not sure if the Dollar is the dog or the tail, but 10 years of precedent says that a US Dollar rally goes hand in hand with global equity and commodity price declines. Period. The what happens around 76.40 on the Dollar futures plays a huge role in whether a close shorts positions or keep them on. Emerging markets and commodities have already broken support (but with limited confirmation thus far). To me, it’s an important inflection point where you can either get long near a bottom, or get the hell out of dodge if the downside breaks hold and the Dollar pushes higher.