Single Country ETF: This India ETF Is At A Critical Inflection Point (EPI)
David Gillie: India, Asia’s third largest economy and the world’s most populous democracy, is at a critical inflection point as it ends the fiscal year in March.
The government announced an anticipated growth rate next year of 6.9%, down from 8.4% the previous fiscal year. Much of the weakening economy has been related to the struggles of it European trading partners. India’s growth rate had been explosive prior to the 2008 crash. However, the Indian stock market had a 25% slump in 2011 even with an 8% growth rate. Much of the pressure on the Indian economy was excessive inflation. The government took strong measures to not only curb inflation but to draw outside investment. A further sign of positive monetary policy is an anticipated rise in interest rates.
WisdomTree India Earnings (NYSEArca:EPI) was the first all India ETF.
Although EPI hasn’t regained all of its losses from 2011, performance over the past week and month show its track of recovery.
Holdings in EPI are weighted 23% in financial services—common for international ETFs. It is also well balanced with basic materials, consumer cyclicals, energy and tech—each comprising 12-18% of the weightings of this ETF. With 2.8 Million shares traded daily on average, EPI is one of the most heavily traded single country ETFs.
EPI had a spectacular breakout of the extended downward channel in January. The breakout was validated by a pause at the end of the month and then a continued gain on higher volume.
With this kind of price action, EPI hit every trader’s radar screen. It is now in extreme overbought conditions and against a dual resistance of previous highs and the 200 day moving average. The Relative Strength Index is unsustainable at the current level over 79. We also see the Money Flow Index coming down off its overbought highs. The +/- Directional Index at the bottom of the chart shows an extreme divergence that would be highly unlikely to continue. Additionally, the AXD above 40 usually signals trend exhaustion. The late January pause was encouraging that it amounted to minor profit taking on a brief stall at the early signs of being overbought. At the current conditions, we’re likely to see another profit taking in EPI, perhaps stronger than the previous situation.
Timing an entry is important at this level. Ideally, we’d like to see a pullback to the previous stall price around $19.40 to establish a new support level and build a base to push through the 200 day moving average. Even a pullback to the previous high around $18, which would also coincide with support of the 50 day moving average, would keep EPI in positive strength territory.
For investors looking for an entry into EPI, prudent action might be entering a partial position at the $19.40 level. Should it rise from there, you could add to complete the position. Should the price pull back to the $18 support, you could fill out you position there and lower your cost averaging.
Disclosure: At the time of writing, I do not own any position in EPI.
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