Emerging markets are set for an even bigger rally in 2018, says one technician

Emerging markets soared more than 33 percent in 2017, and Todd Gordon of TradingAnalysis.com says the rally won't stop.

A big part of the rally in emerging markets, tracked by the emerging market ETF EEM, was a weak dollar. And given that Gordon still sees the inverse relationship between EEM and the dollar, measured in his charts by the dollar-tracking ETF UUP, he believes the U.S. currency will continue to help the group.

"We have a falling U.S. dollar, which will support international and emerging market currencies and will give those EEM stocks a boost," Gordon said Tuesday on CNBC's "Trading Nation." The U.S. dollar in 2017 posted its worst annual performance in 14 years, while EEM saw its best performance since 2013.

As for how high the latter could go, Gordon says EEM has broken "resistance" at around $45, which was the ETF's 2014 highs. That $45 region is now what he calls "support," and he sees it rallying to $50, which the ETF hasn't hit since mid-2011.

To play for a move higher, Gordon suggested buying the February 48/50 call spread for 72 cents, or $72 per options contract. This means that if EEM closes above $50 on Feb. 16, then Gordon could make a maximum reward of $128 on the trade.

But if EEM were to close below $48, then Gordon would lose the $72 he paid for the trade. As a result, Gordon wants to establish a point at which to get out.

"If the 72 cent premium we just laid out gets cut in half to about 36 cents, let's cut the trade and move on," he said.

EEM started the year off strong, rallying more than 1 percent on Tuesday.


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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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