ETFs provide a way to trade and invest in global markets, utilizing the U.S. markets where the ETFs trade. While the S&P 500 is at all time highs, some other global markets have been lagging behind, but now look poised to rally to the upside as well. Watch these global market ETFs for more upside in the coming months.
The iShares China Large-Cap (FXI) is in an uptrend since early 2016. In October the buying leveled off at $39.17, and the ETF entered a pullback period, reaching as low as $33.91 in December. That pullback was confined to a descending channel. In mid-January, that channel was broken when the price moved above $36.50. Upon breaching this level, the price consolidated between $36.74 and $36.14 for nine trading sessions. On Jan. 25 the ETF closed at $36.78, breaking higher out of the consolidation as well. The upside target is $40.30 to $41, based on the trajectory of the uptrend since early 2016 and the size of the descending channel. The downside of this opportunity is that the price is already at the top (slightly above) the descending channel, so if the channel continues the price could slide back below $34 (bottom of the channel). A drop below $34 brings the uptrend into question, and more downside could materialize.
Wisdom Tree India Earnings ETF (EPI) has also been in an uptrend since early 2016. The advance stalled at $22.38 in September and entered a pullback phase, reaching as low as $19.43 in November. Following that November low the price rallied, made a higher swing low in December and then continued to move higher. That movement indicated a shift back the upside, in alignment with the broader uptrend. The advance is already underway, but there is lots of room left on the upside. Based on the trend the price is expected to make a new high, which means a rally above $22.38. The price target is $23, which is about 7% above the Jan. 25 closing price of $21.43. Since the price has already rallied aggressively this year, those getting in now have less upside and more downside potential than those who got in when the pullback ended at the start fo the year. If the price drops back below $19.70, the uptrend is drawn into question, and more downside could materialize.
iShares MSCI South Africa (EZA) has formed a similar pattern, trending higher through the first half of 2016 and then experiencing a pullback into the end fo the year. That pullback took the form of a descending channel, which was broken when the price rallied above the $54.50 region on Jan. 11. This indicates the next wave of the uptrend has already begun. The upside target is $62 to $63.25, based on the strength of the trend and the size of the descending channel. If the price drops back to $50 or below, that brings the uptrend into question and more downside could develop. Based on these guidelines, traders can look for an entry point and stop loss level that allows for a good risk/reward ratio trade setup.
The Bottom Line
It looks like these global market ETFs have already begun their next push to the upside. If the uptrends continue, the ETFs should proceed above 2016 highs and toward the price targets. While there is still upside, the prices have already moved aggressively higher in recent weeks. Some traders may be comfortable buying at these levels, while other traders will want to wait for a bit of a pullback and a lower entry point (which may or may not occur). Trends can change, so only risk a small percentage of account capital on any single trade.
Disclosure: The author doesn't have positions in the ETFs mentioned.