Tickers in this Article: SPY, EWH, EWS, EWM, EWA
While the S&P 500 SPDR (ARCA:SPY) ETF has sagged in October - signaling a short-term double top is in place and likely leading to a further slide toward $137 - ETFs representing some other countries have been pushing higher in recent weeks. While global markets are often loosely correlated with the S&P 500, divergences can last for a long time. These divergences provide trading opportunities and in this case for the bulls, as the uptrends in these ETFs remain intact. Those that are bearish can also watch for reversals in these ETFs, although shorting opportunities are more abundant in markets that have already shown signs of weakness.

The iShares MSCI Hong Kong Index (ARCA:EWH) has been in a strong uptrend, rallying from a June 4 low at $15.48 to an October 25 high of $18.92 - a 22% gain in just under five months. The recent high shows this market is relatively strong compared to an index such as the S&P 500, which turned lower over the last several weeks. Support is currently at $18 and trendline support is at $17.50. If the former is broken, it is likely the trendline will be tested. Pullbacks toward the trendline present buying opportunities with a stop order below the trendline. The next upside target, based on a short-term trend channel, is $19.25. Since the channel is upward sloping, the target will rise the longer the channel holds.

EWH uptrend

The iShares MSCI Malaysia Index (ARCA:EWM) ETF advanced 12% over four-and-a-half months, from a June 4 low at $13.47 to an intra-day high of $15.12 on October 18. The uptrend remains well defined as long as the ETF stays above $14.60. A drop below $14.28, which is the low point of a series of pullbacks in September, would confirm the end of the uptrend. Pullbacks between $14.80 and $14.60 are buying opportunities, with a stop-loss order below $14.28. A move back above $15.12 signals a near-term advance to $15.49. A strong trend channel has defined much of the rise since June. A continuation of that channel places another target at $15.60.

SEE: The Stop-Loss Order-Make Sure You Use It

EWM uptrend

The iShares MSCI Australia Index (ARCA:EWA) is still in an uptrend having jumped 23% from a June 1 low at $20.35 to an October 18 high at $25.05. An upward sloping wedge is the key focal point at the moment though. A drop below $24.20 breaks the wedge to the downside, indicating a further slide into $22.50. Rallies are likely to be contained by the upper trendline of the wedge, with price targets at $25.20 followed by $25.40. A sharp move higher that breaks the upper wedge trendline signals another primary advance and a target of $26.46 over the next several months. Buying opportunities occur along the lower trendline of the wedge - right near the current October 26 close of $24.49. Stops orders should be placed to avoid getting trapped in a wedge breakout to the downside, should it occur.

SEE: Analyzing Chart Patterns: The Wedge

EWA upward wedge

The iShares MSCI Singapore Index (ARCA:EWS) is in a slightly different situation. It peaked at $13.82 in the middle of September and has since made a series of lower highs and found support at $13.18 or above. This price action has created a triangle formation. If the ETF rallies above $13.60 the initial upside target is $14.20. A drop below $13.18 has bearish implications, but the overall uptrend is not officially broken unless the price drops below $12.90. A drop below $12.90 is less likely than an upside breakout, but if that drop occurs the downside target is $12.60 to $12.40.

SEE: The Anatomy Of Trading Breakouts

EWS triangle

The Bottom Line
Still holding within their respective uptrends, these ETFs provide the opportunity for investors to participate in bull markets occurring in different parts of the world. There is still upside potential in these markets, but risk must also be managed. Global markets often adhere to at least a loose correlation with each other, so a price shock in one market can affect the rest. Watch for changes in direction as indicated by trendlines or chart patterns being broken. As long as support levels hold, pullbacks are buying opportunities.

At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.

comments powered by Disqus
Trading Center