Emerging markets and the S&P 500 are like partners in a three-legged race. As long as they’re both standing upright and moving forward, the race continues. But, when one partner falls, it’s just a matter of time before the other partner stumbles as well.

Oh sure, the upright partner might be able to drag the fallen partner along the track for a little while. Eventually, though, they’re both going to hit the ground.

And that fact should worry investors – because in the global stock market three-legged race, emerging markets have fallen down.

Look at this chart of the iShares MSCI Emerging Markets Fund (EEM)…

Now look at the chart of the S&P 500…

The blue circles on the charts highlight the times over the past two years when the S&P 500 continued higher while the emerging markets stumbled. Each of the previous three occurrences was followed by a sharp decline in the S&P 500.

In June of 2018, for example, the S&P fell 100 points in just three weeks. The 600-point correction in the S&P during the fourth quarter last year came on the heels of a decline in emerging market stocks. And, the 200-point drop in the S&P two months ago followed a downturn in emerging markets.

We now have a similar setup.

The S&P 500 has been rallying. The index broke to a new all-time high just last week. But, emerging markets are trading about 5% below the high they reached in April. And, EEM has been falling all through July, while the S&P has been rising.

This sort of divergence has often been a good warning sign of an impending correction in the S&P 500. It’s just another reason, in a growing list of reasons, why investors should be a little cautious on the broad stock market right now.

Best regards and good trading,

Jeff Clark

P.S. Before you go, one last reminder…

My colleague Jeff Brown just made a big announcement about his new trading system. Like I said all last week, it’s unlike anything I’ve ever seen before.

I wanted to make sure you had the chance to watch Jeff’s Accelerated Profits Summit… before it comes down at midnight tonight. You can still watch him reveal his new system – and learn how to access his first three trades – here.  

Reader Mailbag

In today’s mailbag, a Jeff Clark Trader subscriber comments on the service…

Prior to this publication, I had never speculated using options. Jeff has done a great job simplifying this strategy of trying to turn a dollar into three dollars with less risk. His explanations of how to look for the particular patterns which could result in double- or triple-digit gains is what I have taken away the most rather than simply the monthly recommendations.

– Michael

Thank you, as always, for your thoughtful insights. We look forward to reading them every day. Keep them coming at feedback@jeffclarktrader.com.