EMERGING MARKETS ISHARES FALL TO TWO-MONTH LOW -- MOST OF THE SELLING IS COMING FROM ASIA, AND TAIWAN IN PARTICULAR -- SELLING IN TAIWAN SEMICONDUCTOR IS THE MAIN REASON WHY -- SEMICONDUCTOR ETFS HAVE SLIPPED BELOW THEIR 50-DAY LINES
EMERGING MARKETS ISHARES FALL TO TWO-MONTH LOW... The recent rotation out of technology stocks may be taking a toll on emerging markets which are heavily exposed to that sector. Chart 1 shows Emerging Markets iShares (EEM) falling below its 50-day average to the lowest level in two months. And it's been falling in heavy trading. Most of that selling is coming from Asian countries which make up more than half of the EEM. Stocks in China, South Korea, and Taiwan are leading the EEM lower. China and Hong Kong iShares have both fallen below their 50-day averages. South Korea is falling toward its 50-day line. The biggest loser is Taiwan. Chart 2 shows Taiwan iShares (EWT) falling all the way to its late September low and is approaching its 200-day moving average. Given that region's heavy exposure to technology stocks, it seems fair to suggest that some global rotating is going on away from sectors and regions that depend heavily on technology strength. The main culprit at this point appears to be in the semiconductor group. Let's start with Taiwan Semiconductor (TSM) which is the biggest stock in Taiwan.
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Chart 1
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Chart 2
TAIWAN SEMICONDUCTOR UPTREND IS IN TROUBLE... The daily bars in Chart 3 show Taiwan Semiconductor Mfg. (TSM) falling to a two-month low and slipping below a rising trendline drawn under its April/September lows. [TSM accounts for nearly a quarter (22%) of the EWT]. The big red volume bars along the bottom of the chart also show heavy selling pressure over the last week. Also looking ominous is the fact that daily MACD lines (below chart) have fallen to the lowest level of the year. Those are negative signs for the stock and the Taiwan market. That may also be the case with the entire semiconductor group.
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Chart 3
SEMICONDUCTOR ETF SLIPS BELOW 50-DAY LINE... The daily bars in Chart 4 show the Van Eck Vectors Semiconductor ETF (SMH) having slipped below its 50-day average and in heavy trading. Its daily MACD lines (below chart) have shown the weakest performance of the year. The falling SMH/XLK ratio (top of chart) shows that semiconductors have been one of the weakest parts of the technology sector over the past couple of weeks. It just so happens that Taiwan Semiconductor is its biggest stock (10%). [Although the PHLX Semiconductor iShares (SOXX) have also fallen below their 50-day line with a much smaller TSM weighting]. If there's a "canary in the coal mine" for the technology sector, it may be the semiconductor group. That may be true for emerging markets as well, especially in Asia. Emerging markets have been the strongest stock markets in the world this year. But a lot of that was driven by rising technology stocks. And that was largely due to semiconductors. Through the first eleven months of this year, technology stocks gained 33% to lead the U.S. market higher. Semiconductor stocks, however, rose 45% during that period. Emerging markets led the world higher with a gain of 35%. The numbers suggest semiconductors had a lot to do with that.
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Chart 4
EMERGING MARKETS LOOK VULNERABLE TO MORE SELLING... The weekly bars in Chart 5 show Emerging Markets iShares (EEM) falling below a rising trendline extending back to the start of the year (as well as its blue 10-week average). That suggests that more profit-taking may be in store. Maybe enough to lower the EEM to its red 40-week average and/or another major support line extending back to the start of 2016 (black arrows). At the same time, its 14-week RSI line has dropped to the lowest level of the year; and its weekly MACD lines (below chart) are turning negative for the first since January. It seems reasonable to suspect that investors looking to lock in stock gains before the end of the year would start in emerging markets, which have been the year's biggest gainers. They may be doing the same in semiconductors and for the same reasons.
