Why it might be time to bet on emerging markets

The emerging markets have been trading in a range for the past few months, but one trader sees signs of a breakout to the upside.

Todd Gordon of TradingAnalysis.com said a popular emerging markets ETF, the EEM, has being "pretty beaten down" this year but from a technical standpoint, it could be headed for a consistent rise.

On a chart of the EEM, Gordon gets specific and takes a look at the ETF's recent moves.

"We have a left shoulder, we have a head and we have a right shoulder right here. This is a technical pattern called an inverse head and shoulders," he said Monday on CNBC's "Trading Nation."

An inverse head and shoulders is a chart pattern that is thought to precede a trend reversal.


On Monday, the EEM rose to its highest level since April.

In addition, Gordon also believes that based on the EEM's more recent levels, $35 is the breakout level to watch.

"If we can break through $35, the pattern is complete and it looks like we'll get some help internationally for our domestic market rally," he said.

In fact, the EEM's premarket price was $35.18 on Tuesday morning.

Since options prices on the EEM have fallen, Gordon suggests simply buying a call option to bet on the ETF, rather than simultaneously buying a call and selling a higher strike call to make a call spread.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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