Emerging markets first casualties of Fed policy talk of taper

Most of the time its easy to make fun of the economic collapse brigade out there and other times its really obvious how unstable the world economy is and has been since the financial crisis. Was reading up on how emerging markets and their currencies were collapsing and it seems all too obvious how the Fed taper talk may have been the reason for that.

Sometime in May the Fed started talking about taper and emerging market equities (EEM) began to tank lower, see red line. As the very mention of taper meant bond yields in the US would rally and investing at home becomes more profitable. FDI pulled out of the EM markets led to the slide and their currencies. The FDI pullout has left their markets lower by 13% while their currencies continue to slide. Some of that repatriated dollar fled back into equities and led to the 10% spike in equities on relatively no volume.

Seems indicative of some serious challenges ahead, I mean these are relatively decent size economies (India is the 3rd largest in PPP terms) and yet the impact of US policy is just beyond their management capabilities. What is more of concern is what happens to the US economy when Fed does begin to taper. If equities can move 10% in two weeks what woulds stop from a larger slide down, when everybody is a seller!

Recap 8/22/2013 - Choppy ahead

It's been interesting since the last post, we had a declined on talk of QE taper then ramp up sharply on the Fed calming the markets on tapering. Then bulls seemed exhausted and the SPY moved sideways for a while until the exhaustion played out. In a rather sharp move lower. Seems like price lately is about jumping levels and then consolidation at those levels. We did the grind near the all time highs above the 5/22 peak the jumped lower and for the last four days price has just hugged the 6/18 high. Also, look at the measured move targets, price almost exactly matches.

I posted this chart on TV earlier, price broke 0.38 fib and has bounced higher. Its at an interesting level near the 6/18 high and if tomorrows open isn't higher the bounce gets cancelled and we should move lower towards the 162 target on my chart, we'll find out.