India ETF Caught In Downward-Sloped Channel

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March 10, 2016 5:12pm BATS:INDA NYSE:PIN

indiaRick Pendergraft:  Looking back to April 27 of last year, when the Chinese stock market peaked, the markets of the BRIC countries have all struggled. Brazil and Russia have struggled as the price of oil has remained low, hurting the two countries as oil producers. 

China has been hit with a number of issues, from slowing economic growth to an increasing regulatory environment.

India hasn’t had as much negative news hitting its market, but it has moved lower none the less. Looking at four ETFs for the BRIC markets, we see the iShares China Large-Cap ETF (NYSEArca: FXI) is down 36.45% since April 27,  2015, while the iShares MSCI India ETF (BATS:INDA) is only down 11.99%. The Market Vectors Russia ETF (NYSEArca: RSX) is down 14.87% and the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) is down 30.6%.

India ETF

Back in December, I pointed out that the India ETF was in a downtrend. At the time, the daily oscillators were in overbought territory and the fund looked as though it was ready for another leg down. That is exactly what happened, as the INDA fund fell from the $27.50 area on Dec. 29 to the $23.50 level on Feb. 11. Since then, the fund has bounced back and is back above the $25 level, but is also overbought again.

India ETF daily chart

The fund isn’t quite back up to the upper rail of the channel that has dictated trade over the last year. But I don’t think you want to wait for it to get there before shorting the fund either, given the extremely overbought readings coming from the daily oscillators.

We see on the weekly chart that the fund is dancing around its 13-week moving average, which is what it did back in December before the drop occurred.

India ETF weekly chart

While the India ETF hasn’t fallen as sharply as the other BRIC funds discussed, it is still caught in a downward trend. The fund doesn’t seem to be as volatile as the others – and that might not be a bad thing.

For some reason, investors seem to get more nervous about a short sale that is working and have a tendency to close short positions much more readily than they do long positions.

I am not sure why that is, and I don’t have any empirical evidence to this effect, but it is an observation that I have made.

The reason this could be good for shorting INDA is because a methodical move down might be easier on your emotions than a more volatile fund such as the FXI.

I would look to short INDA above the $25 level, with a target to the downside near the $20 level.

It might take a few months, but that seems to be where the fund is headed, and it could get all the way down to the previous low at $18.36.

As far as a stop-loss point, if the fund moves above the upper rail of the channel, I would shut the trade down.

This article is brought to you courtesy of Rick Pendergraft from Wyatt Research.

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