Ireland ETF May Be Ready For A Breakout Move (EIRL, EEM, CRH, EFA, ELN)
Scott Martin: As a sum-of-the-parts play, the MSCI Ireland ETF (NYSEARCA:EIRL) seems to have room to head higher whether traders get defensive or deepen their bets on a fresh burst of growth for the global economy.
EIRL has already rebounded a healthy 23% since October and for a while last month was actually back above the levels it surrendered in the summer sell-off.
However, in the last few weeks, the Ireland fund has given back 6.8%, underperforming both the euro-heavy MSCI EAFE (NYSEARCA:EFA) and the MSCI Emerging Markets ETF (NYSEARCA:EEM).
The bulk of that recent slide has been from top allocation CRH Holdings (NYSE:CRH), which is down 4% since Tuesday. This doesn’t seem to be a concern over the company’s Chinese construction materials business — if that were the case, Chinese stocks would have taken a hit too — but simply a round of technically driven profit taking.
As it happens, CRH hit its head on the 50-day trend at $20.35 Tuesday morning and failed to pierce that resistance level.
That put this massive Irish company and the full 20% of EIRL back on the defensive, and roughly in the middle of the 50- to 200-day channel that so many global stocks are currently negotiating.
There’s a full 2.6% of room for CRH to move up before it even touches the resistance line again, and that right there gives EIRL bulls freedom to move as well.
Meanwhile, the second-largest holding in the fund, specialty drug maker Elan (NYSE:ELN) is sitting pretty on top of the 50-day line, having conquered it during its 39% run over the last six months.
From a technical perspective, ELN still looks solid: not too high above support to raise concerns that it’s gotten ahead of itself, and according to some indicators, it’s only now rallying out of an oversold position.
Fundamentally, the company is generating plenty of news catalysts as it pursues new applications for its family of neurology drugs. Hedge funds love it. And in the event of a global economic slowdown, pharma stocks are an age-old haven from risk.
Once global traders decide that the world’s construction industry is chugging along, CRH could get a lift. ELN already has what it takes to enhance the impact of that move, and the two stocks together account for 30% of EIRL.
Get both firing at once, and this fund could be ready for its next breakout move.
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.