'This is the signal': Emerging markets flash buying opportunity amid broad market declines, says trader

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Emerging markets flashing buy signal, says Oppenheimer's Ari Wald

Call it an emerging opportunity.

Now may be the time for investors to start buying certain emerging market stocks as the broader market declines on widespread worries around China's worsening coronavirus outbreak, said Ari Wald, senior technical analyst at Oppenheimer.

The iShares MSCI Emerging Markets ETF (EEM) fell by more than 3% on Monday as fears of the spreading virus gripped the major averages. Thirty-four percent of the ETF's weighting is in Chinese stocks, with Alibaba being its largest holding.

"We see this weakness as an opportunity," Wald said Monday on CNBC's "Trading Nation," adding that the weakness has not been meaningfully "damaging." "The turnaround is still in play and we accordingly see this as a tactical opportunity."

Wald flagged a more niche opportunity in the emerging market landscape: Invesco's China Technology ETF (CQQQ).

"[This] ETF ... was really hard-hit in 2018. It spent 2019 building a base, it broke out in December of last year, and now it's correcting back into its breakout point. Very often, prior resistance becomes support. That's $50 on CQQQ," Wald said.

The Oppenheimer analyst also doubled down on his firm's recommendation of Alibaba, which he called "one of the stronger stocks within that space."

But that wasn't all that was telling Wald now was a good time to buy.

"Our VIX signal went off this morning," he said, referring to the Cboe Volatility Index, also known as the market's fear gauge, which tracks investors' expectations of volatility. The VIX ended trading at 18.23 on Monday.

"That VIX level at 17 is actually a pretty high level given the backdrop that we've been in," Wald said of Monday's action. "What we like to do is look at VIX versus where it's been over the last three months. This was a 50% spike in the VIX off that three-month low. Typically, when you get those spikes of 50% and the S&P 500 is still above its 200-day moving average, as is the case, when you get a spike in an uptrend, you tend to have above-average returns six months out."

In short, "this is the signal. This is a near-term opportunity to buy what we see as an intact uptrend for the S&P 500," the technical analyst said.

Quint Tatro, chief investment officer at Joule Financial, wasn't so sure.

"We're getting a little bit of a pop today, but I'd actually be looking for a VIX spike to 25 to 30, real panic setting in, which we haven't seen in a very long time, and then I would be a buyer of the emerging markets on that panic," Tatro said in the same "Trading Nation" interview.

As one of Joule Financial's "higher-conviction plays," emerging markets were flashing an opportunity, Tatro acknowledged, but he advised waiting for some more weakness before jumping in.

"We do feel that it is an opportunity. I'm not so sure if that opportunity is today, on today's sell-off," he said Monday.

"[For] the United States market, this is a little bit of a wake-up call, and I think that folks will start to look at the fundamentals a little bit better. So, we're actually looking for some further weakness and a little bit more fear in the play," Tatro said. "But when that fear arrives, and I think folks can look at the VIX and see spikes there — we're having one today, but we think it can continue — I think that the emerging markets is a very good place to start investing in for the next several years. Again, we do think that it is a very undervalued group and it will benefit from … more certainty with China, the reflation trade and also manufacturing booming in other parts, not just China, as well."

Disclosure: Quint Tatro and Joule Financial are long shares of EEM.

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