Emerging Markets Ready for Downturn

FYI: Most of these patterns could be easily invalidated by a sharp rally next week, but a downturn in EMs would conform with my macro outlook.

August has been a historically bad month for emerging markets. Indonesia is a worst-case example of this with both August and September negative for the Indonesia ETF (EIDO). It has a limited history though. EEM goes back farther and it too is historically negative in August. I do not place much stock in seasonality, by the way, but I do believe one should pay attention when "the stars align."

The blue lines are major support/resistance going back to 2011 and 2007 peaks.

The China ETF (FXI) could resolve bullish or bearish, but the gap between the support and resistance is only 5 percent.

India ETF (EPI) has broken its uptrend.

Brazil (EWZ) could stand to rally given its more localized issues, but it too has experienced a failed breakout.

Malaysia (EWM)

South Korea (EWY) isn't an emerging market, but its also experience a failed breakout, negative for EMs considering it is highly reliant on trade and China.

Emerging market local currency debt has broken out, but this was partially driven by falling interest rates. A strong dollar rally would turn this into a failed breakout as well.

Mexico (EWW) could be bottoming on extreme negative sentiment, but in context of everything, a breakdown is possible.

U.S. Dollar Index Bullish ETF (UUP) hit a new 52-week high on Friday.

Finally, here are a number of currencies. Many sport basing patterns similar to the broader U.S. Dollar Index and trade-weighted USD. There will be no significant breakdown in emerging markets without a major breakout in the dollar.