In early December I noted that 7 day momentum on Twitter was predicting lower prices for emerging markets (EEM). My expectation for the trade was that EEM would fall to either the January 2014 or June 2013 lows. Here’s the chart that accompanied my notice of the trade setup.
The trade made it to the June lows and has now bounced. Since it had a low risk/reward I suggested that traders must be nimble to make the trade. This is the type of trade that when my initial target is reached I take at least half the position off. Then I wait and see what happens with Twitter and StockTwits sentiment before closing the rest of it.
Below is a chart with the current situation for EEM. As you can see both Twitter and StockTwits are still confirming the downtrend for EEM. However, the last dip took 7 day momentum into oversold territory. It will be hard to push sentiment lower which will put pressure on the down trend line. As a result, the ETF (and momentum) needs to move lower soon or the trade signal will close (by breaking above the confirming down trend line). If price moves higher out of the current range and above the 50 day moving average I’d close the trade regardless of momentum…don’t let a gain turn into a loss.
If EEM breaks lower and makes it to $36 I’d be quick to close the rest of the trade…especially if momentum is painting a positive divergence.