Charts Suggest It's Time to Buy Into Emerging Markets

In addition to precious metals, active traders over the past several weeks have been predominately focused on North American technology and health care companies. As investors continue to look for ways to diversify their holdings outside of these key sectors, one idea could be to increase exposure to emerging markets.

As you'll read about below, one common exchange-traded fund (ETF) used to track emerging markets is showing technical signs suggesting that a long-term uptrend could just be getting started. We'll also look at two of the ETF's top holdings to try and determine specific trades that could capture the attention of traders over the days and weeks ahead.

SPDR Portfolio Emerging Markets ETF (SPEM)

Active traders who look to broaden their portfolio's international exposure often turn to ETFs that track niche segments such as the emerging markets. As you can see from the chart of the SPDR Portfolio Emerging Markets ETF (SPEM), this group could be of specific interest to traders over the months ahead because the price has recently risen above the resistance of its 200-day moving average and has started an interesting move upward. The retest of the 200-day moving average back in June is of specific interest to followers of technical analysis because it signals that the bulls are in control of the momentum and that the long-term trend is likely to shift upward.

As further confirmation, traders will also want to note the recent bullish crossover between the 50-day moving average and the 200-day moving average (shown by the blue circle) because it is a common long-term buy signal used by active traders to mark the beginning of a major long-term uptrend. From a risk-management perspective, traders will most likely hold a bullish outlook on emerging markets until the price of the fund makes several consecutive closes below $33.65.

Alibaba Group Holding Limited (BABA)

With a weighting of 6.06%, Alibaba Group Holding Limited (BABA) represents the largest holding of the SPEM ETF. As you can see from the chart below, an ascending triangle pattern has formed on the chart, as shown by the dotted trendlines.

Followers of technical analysis will most likely set their short-term target prices near $290, which is equal to the entry point plus the height of the pattern. From a risk-management perspective, stop-loss orders will most likely be placed below one of the dotted trendlines, depending on risk tolerance and investment horizon, in order to protect against a sudden shift in market sentiment or underlying fundamentals.

Taiwan Semiconductor Manufacturing Company Limited (TSM)

Another top holding of the SPEM ETF that will likely capture the attention of active traders is Taiwan Semiconductor Manufacturing Company Limited (TSM). Taking a look at the weekly chart below, longer-term traders will most likely want to note that the stock is trading within an extremely strong uptrend and that the momentum in recent weeks has sent the price beyond key resistance near $60.

With such a strong surge in momentum, some traders will likely want to wait for a retracement toward support before buying. However, based on the chart, it is also clear that there are no resistance levels standing in the way of a continued move higher. Depending on risk tolerance and investment horizon, some traders may look to enter as close to current levels as possible to try and capitalize on the established momentum.

The Bottom Line

Most of the attention of traders in North American has been spent on domestic equities and commodity segments such as precious metals. Based on the charts discussed above, it appears as though now could be the ideal time for a broader perspective by looking to emerging market equities such as Alibaba and Taiwan Semiconductor Manfuacturing.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

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