EEM Emerging Markets Trend

## EEM Emerging Markets Trend — Full Methodology

### Macro Regime Filter

1. **Dollar weakness:** DXY (US Dollar Index) must be below its 50-day SMA and trending down

2. **EM relative strength:** EEM must outperform SPY over the trailing 20 days

3. **Risk-on environment:** VIX below 25 (capital willing to flow to risk assets)

### Entry Criteria

1. DXY below 50-day SMA with negative 20-day slope

2. EEM/SPY ratio is rising (20-day slope positive)

3. EEM price above its 50-day SMA

4. MACD(12,26,9) histogram is positive

5. Enter long at the close

### Exit Rules

- **Dollar strength:** Exit if DXY closes above its 50-day SMA for 3 consecutive days

- **Relative weakness:** Exit if EEM underperforms SPY for 3 consecutive weeks

- **Trailing stop:** 6% below the highest close

- **VIX spike:** Exit if VIX > 30 (risk-off — EM is first to sell)

### Position Sizing

- Risk 1% of portfolio per trade

- EM equities carry country risk, currency risk, and political risk — max 10% allocation

- Consider EEM options for defined risk

### Best Market Conditions

Works best during weak dollar regimes and global growth recoveries. EM equities benefit from commodity exports, weaker dollar (less debt burden), and risk-on flows. The 2017 and 2020–2021 EM rallies were driven by dollar weakness. Underperforms during dollar strength (2022) and China-specific crises.

### Backtest Notes

Tested on EEM/DXY/SPY daily data from Jan 2015 to Dec 2024. The dollar filter is the most important variable — EM performance is highly correlated with USD weakness.