Summary
We are near the start of 2025, with two strong years for the U.S. stock market close to being in the books. But could 2025 include some mean reversion outside of the 50 states? To consider that, we’ll start with a focus on the Emerging Markets ETF (EEM) and the iShares China-Large-Cap ETF (FXI). Whenever we talk about EEM and FXI, we first look at the technicals of the U.S. Dollar Index (USD). The two ETFs are highly negatively correlated with the USD and any consideration of these foreign ETFs must be associated with at least a “potential” negative outlook for USD. USD began its uptrend in 2011 and peaked in 2016. From 2015 until 2022, USD traced out a sideways, bullish consolidation and broke out in 2022. After peaking in September 2022, USD went sideways before taking off in September 2024 and racing higher from $100 to a recent top of $108. It appears USD has traced out a five-wave advance and has run into chart resistance in the $108 region. Interestingly, while the Commitment of Traders (COT) data turned bullish in September, it finally has backed off and is now neutral. In another week or two, it’s possible the COT data will turn bearish on the USD. So the setup is there for a USD peak, which would