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Shares in emerging markets may rise in the coming months. The group, measured by the iShares MSCI Emerging Markets ETF (NYSE :), performed considerably worse than in 2019 and increased by only 12.8% compared to the S&P 500 profit by 23.1%.
However, that can change. Some option traders make large bets that EEM will rise significantly, by as much as 14% in the next seven months.
The technical graph shows that the ETF has broken a very powerful long-term trend and is now approaching a major outbreak. The group seems to be making a bid, while markets around the world are breaking out hoping for a trade agreement between the US and China and the potential for a global economic recovery.
Big Bets That The Eem Rises
In recent days, the outstanding interest rate for the FEME calls of $ 20 December 20 has risen by nearly 340,000 contracts. For a buyer of these calls to make a profit, the ETF must rise to around $ 45.50, a gain of around 3%.
But the big gamble that is taking place is for the calls of $ 50 on June 19, 2020, where open interest rates have risen by more than 283,000 contracts.
According to data provided by Trade Alert, the majority of those call options that were traded at the ASK, an indication that the calls were being purchased, which in turn indicates a bet that the EEM will rise in the coming months. The calls are currently being traded for around $ 0.40 per contract, which means that for a buyer of the calls to make a profit, the ETF should rise to around $ 50.40, a gain of around 14%, if the options are retained until the expiration date.
It is also not a small bet, with a total dollar value for the 287,000 $ 50 call contracts worth around $ 11.5 million. Options are not like shares: if the ETF does not reach the strike price, the trader loses his entire expense.
(Investing.com)
Outbreak of a downward trend
The ETF has also released itself from a steep downward trend that has been in force since this spring. It is now on its way to its next major level of technical resistance at a price of around $ 45.
Should the ETF rise above that resistance level, it could rise to around $ 47.20, an increase of around 7% over the $ 44.07 price on November 7. However, if the ETF cannot break out, it can lead to a decrease to $ 43.25.
The world breaks out
The big step higher in the ETF of the emerging market should not be a surprise. I noted on October 25 that global stock markets were about to achieve a dramatic increase based on the iShares MSCI ACWI (NASDAQ :). That ETF is now at the highest level since January 2018 and is testing an outbreak at $ 77.50.
In recent days, the stock market has taken an important step in the hope of further de-escalation of the trade war between the US and China. Recent headlines now suggest that tariffs can be phased out slowly and that new tariffs expected to be introduced in December will not go ahead.
Bringing together all the pieces would make sense a step higher in emerging market equities. a trade deal must be completed. Based on the current global market movement, emerging market equities may seem to be a big winner in the coming months, especially if global growth comes back online.
