There are a significant number of international stock market exchange-traded funds (ETFs) that were rising but have stalled or fallen slightly in recent months. With the long-term uptrend still in place, if these ETFs can push above short-term resistance, there is potential for another run to the upside. Here are three ETFs that are near breakout levels, along with the price levels to watch.
The iShares China Large-Cap ETF (FXI) has been rallying since the start of 2016. The most recent peak occurred in early June at $40.70. Since then, the price has been dropping within a wide channel. The descending trendline for the channel intersects near $40.25, so a breakout above that could signal that the pullback is over. The upside profit target, should the breakout occur, is $41.75 to $42. That is the short-term projection for the next wave up. A stop-loss can go below $39.37 (June 29 intraday low). Alternatively, traders could utilize a tailing stop-loss to capture a larger gain if the price keeps moving up. (For more, see: China ETFs Soar Despite Trump.)
The Wisdom Tree India Earnings Fund (EPI) has moved higher throughout 2017 with no significant pullbacks, until now. The price peaked at $25.47 in May and has been forming a descending triangle since then. A breakout from the triangle occurs if the price rallies above $25.20, signaling an advance to $26.45 or higher (based on the height of the triangle, added to the breakout price). A stop-loss can be placed below the June low of $24.22. Given the strength of the prior rallies, a much larger up-move could follow the breakout. Another wave up similar to ones seen early in 2016 and 2017 would push the price close to $30. (See also: India: An Excelling Emerging Market.)
The iShares MSCI Europe Financials ETF (EUFN) began rallying in mid-2016, following a steady decline over the prior 2.5 years. The most recent peak occurred in May at $22.42. The price then leveled off and dropped in late June, but it has come storming back. As of July 5, the price is closing in on that $22.42 high. Traders should watch for a breakout above $22.42 to signal another advance. The ETF moves in a fairly choppy fashion, with quick bursts higher followed by quick drops and then another move up. An estimated target for the next move up is $23.65, but it is likely better to utilize a trailing stop-loss. Traders can move the stop-loss, initially near $21, to just below new swing lows as they form. This method should capture profits on at least one rally, or more, if the price keeps rallying through the former peak. (For more, see: A Bank ETF for the Other Side of the Pond.)
The Bottom Line
Buying breakouts from pullbacks or consolidation patterns in ETFs that are already in uptrends can be an effective way to profit if the trend continues. The risk is that the trend does not continue or that the price moves sideways or drops in the short term, triggering stop-losses or tying up capital for extended periods of time. It is helpful to look at the pros and cons of all trades and establish whether the reward potential justifies the risk. Since these are all international stock market ETFs, they are prone to daily price gaps. That can be favorable when the price moves in the expected direction, but it can increase risk if the price gaps below a stop-loss level. Traders should keep this in mind and only risk a small percentage of account capital on any single trade. (For related reading, check out: The Anatomy of Trading Breakouts.)
Charts courtesy of StockCharts.com. Disclosure: The author does not have positions in the securities mentioned.