EM Country ETFs

Objective Technical Ranking System

The Excel spreadsheet below indicates the weekly change in the objective Technical Ranking (“TR”) of each individual EM Country ETF. The technical ranking system is a quantitative approach that utilizes multiple technical considerations that include but are not limited to trend, momentum, measurements of accumulation/distribution and relative strength. The TR of each individual EM Country ETF can range from 0 to 50. The primary take-away from this spread sheet should be the trend of the individual TRs, either the continued improvement or deterioration, as well as a change in direction. Secondarily, a very low ranking can signal an oversold condition and a very high number can be viewed as overbought. Thirdly, the weekly TRs are a valuable relative strength/weakness indicator vs. each other, in addition when the Total EM Country ETF Technical Ranking (“EMTTR”), that has a range of 0 to 1000 is near the bottom of its range and an individual cryptocurrency has a TR that remains elevated, it speaks to relative strength and if the EMTTR is near the top of its recent range and an individual EM ETF has a TR that remains mired at low levels it speaks to relative weakness. Lastly, I view the objective Technical Rankings as a starting point in my analysis and not the entire “end game”.

Technical Condition Factors Calculations

There are eight Technical Condition Factors (“TCFs”) that determine individual TR scores (0-50). Each of these eight, ask objective technical questions (see the spreadsheet posted above). If a technical question is positive an additional point is added to the individual TR. Conversely if the technical question is negative, it receives a “0”. A few TCFs carry more weight than the others, such as the Weekly Trend Factor and the Weekly Momentum Factor in compiling each individual TR of each of the 20 ETFs. Because of that, the excel sheet below calculates each factor’s weekly reading as a percentage of the possible total. For example, there are 7 considerations (or questions) in the Daily Momentum Technical Condition Factor (“DMTCF”) of the 20 EM Country ETFs (or 7 X 20) for a possible range of 0-140 if all 20 ETFs had fulfilled the DMTCF criteria the reading would be 140 or 100%. A DMTCF reading at 85% and above suggests a short-term overbought condition is developing and a reading of 15% and below suggests a short-term oversold condition.

Relative Rotation Graphs

The Relative Rotation Graphs, commonly referred to as RRGs were developed in 2004-2005 by Julius de Kempenaer. These charts are a unique visualization tool for relative strength analysis. Chartists can use RRGs to analyze the relative strength trends of several securities against a common benchmark, (in this case the EEM Index over the past three weeks or fifteen trading days) and against each other over any given period (in the case below, daily). The power of RRG is its ability to plot relative performance on one graph and show true rotation. All RRGs charts use four quadrants to define the four phases of a relative trend. The Optuma RRG charts uses From Leading (in green) to Weakening (in yellow) to Lagging (in pink) to Improving (in blue) and back to Leading (in green). True rotations can be seen as securities move from one quadrant to the other over time. This is only a brief explanation of how to interpret RRG charts. To learn more, see the postscripts and links at the end of the weekly EM Country ETF Studies.

Total ETF Technical Ranking Indicator

The Total Technical ETF Ranking (“TER”) Indicator is a total of all 20 EM ETF rankings and can be looked at as a confirmation/divergence indicator as well as an overbought oversold indicator. As a confirmation/divergence tool: If the broader market as measured by the iShares MSCI Emerging Markets ETF (EEM) continues to rally without a commensurate move or higher move in the TER the continued rally in the EEM becomes increasingly in jeopardy. Conversely, if the EEM continues to print lower lows and there is little change or a building improvement in the TER a positive divergence is registered. This is, in a fashion, is akin to a traditional A/D Line.

As an overbought/oversold indicator: The closer the TER gets to the 1000 level (all 20 ETFs having a TR of 50) “things can’t get much better technically” and a growing number of individual ETFs have become “stretched” the more of a chance of a pullback in the EEM. On the flip side the closer to an extreme low “things can’t get much worse technically” and a growing number of ETFs are “washed out technically” an oversold rally or measurable low is close to be in place. The 13-week exponential moving average in Red, smooths the volatile TER readings and analytically is a better indicator of trend.