Mike Paulenoff is the co-author of The Business-One Irwin Guide to the Futures Markets (with Stanley Kroll). He was formerly the chief on-air market consultant and strategist for JAGfn, a live, daily 8-hour financial market webcast and cable TV show, and was President of MJ Capital Inc., a market analysis and trading firm which advised clients involved in the financial futures and commodity markets. Mike's real-time ETF trading diary and chart analysis can be found at MPTrader.com (click for a free trial).
Let's have a look at the pattern developing in the iShares Brazil ETF (EWZ). Forgetting for a moment that this is a chart of the Brazilian country ETF, what should we do with this chart pattern? Let’s understand that many charts look like this one: IFN (India), FXI (China), EWH (Hong Kong) just to mention a few. So, do we treat the Nov-June upmove as a completed recovery phase against the BIG bear market?
If we do, then the decline from the 6/11 high at 58.72 into this week’s low at 49.39 likely represents the initial downleg of a new bear phase – or at least a return trip into key support in the vicinity of 42.00-40.00.
On the other hand, should we treat the Nov-June advance as an incomplete bull phase that for the month of June is resting/digesting prior to a resumption of strength that is destined next to climb to the 64.50 area, which represents the 50% recovery price of the entire prior bear phase?
Right here both my pattern and momentum work are telling me to treat the EWZ as a rangebound market that will hit resistance next as it approaches 55.00. Support resides at 51.00. Once the rangebound situation resolves itself, I am expecting a loop down that breaks 51-50 on the way to 45.00.
Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.
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