EEM..Bearish

Above is a weekly chart of iShares MCSI Emerging markets (EEM). In the lower panel is a ratio chart of EEM divided by SPY. Notice the weekly bearish engulfment that has just formed. The previous two bearish engulfments identified the exact top just prior to sell offs. One downmove was small while the other was about 3 times as large as the first sell off. So clearly this particular market seems to react to bearish engulfments.

What makes the current bearish engulfment so interesting is that it coincides with a bearish divergence. You'll notice in the lower panel the ratio line shows that EEM has been leading SPY for the last few years and now is suddenly diverging. EEM makes a new swing high but the ratio line makes a lower high. Combine this with the bearish engulfment and you have reasons to exit longs and maybe look to get short if EEM breaks the low of the bearish engulfment.

One more thing you will notice about the above chart. EEM is at the top of a rising 1 year channel. I've often talked about how the markets are very symmetrical. Moves in time and price tend to repeat. I'm not much of a Gann fan or anything like that, but experience has proven to me that such symmetry does exists. In fact, on December 10th, I posted that Silver was at a top due to such symmetry and since then SLV has fallen rather sharply. You can read about what I said
here
Anyway, getting back to EEM if you look at the advance from October 2005 to May 2006, you will see EEM rallied 36.7 dollars in 29 weeks. Now lets look at the June 2006 low to the January 2007 high and you will also see a 36.20 dollar rally in 29 weeks! Almost identical to the previous rally.

Given all the above evidence I have to be bearish on EEM so I caution anybody who is long. Good luck.