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Emerging markets may have found support following recent drop

|Includes: iShares MSCI Emerging Markets ETF (EEM)

Tim Biggam, TradingBlock  (September 16, 2011, 1:55 CDT)

Symbol Analyst Target Price Target Date
EEM 45.00 March 1, 2012

The iShares MSCI Emerging Markets Index (ticker: EEM) seeks results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI Emerging Markets Index. The fund generally invests at least 90% of assets in the securities of its underlying index and in depositary receipts representing securities in its underlying index. The underlying index is designed to measure equity market performance in the global emerging markets.

While the US equity markets have certainly languished this year, emerging markets have fared even worse, dropping nearly 10% YTD, even with the most recent rally. Emerging market shares are now trading at a lower multiple than the S&P 500, even given the greater growth rate that these stocks have exhibited over the past 10 years.

EEM has recently found support near its annual low of 39, and finally rallied up slightly to the 41 level. Additionally, EEM sports a decent 1.93% yield, comparable to the 10-year Treasury yield. The most recent announcement of European support for their banks while have a large benefit to emerging market stocks, especially Brazil and other commodity-rich nations.

We look for this relative under-performance gap to close, with EEM being a relative outperformer to the S&P 500 over the next six months. I look for EEM to test the 45 level by next March.

Play of the Day

Based on iShares MSCI Emerging Markets Index's (ticker: EEM) current market price of $40.49 and using a target price of $45.00, a target date of March 1, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com. Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy Mar Call Spread +71% 54%
Sell Mar Put Spread +57% 52%
Buy Mar Call +36% 53%
Buy Stock +11% 59%

* Subject to change due to changing market conditions.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.