Is South Africa Ready to Run?

12/28/2010 9:45 am EST

Focus: ETFS

Thomas Aspray

, Professional Trader & Analyst

Click to Enlarge

Chart Analysis: The MSCI South African Index ETF (EZA) has been in a sideways pattern (lines a and b) since mid-October and the trading range is approximately $7 wide. Therefore, on a strong close above the $73 level, the minimum upside target is in the $80 area. If EZA has made its final test of the support at $66, then typically, the fund should not drop back below the midpoint of the range, which is at $69.50. While prices have been locked in a range, the on-balance volume (OBV) has recently made new highs and is in a solid uptrend. This suggests accumulation.

What It Means: There is a high probability, after the dramatic rally from the July lows, that the sideways pattern in EZA is a continuation pattern or an interruption in the uptrend. This does favor a breakout to the upside, as does the positive volume action.

How to Profit: There are two ways to approach this trade. One is to wait for a breakout and then use a stop under $69.30, which could be moved to under the 20-period exponential moving average (EMA) currently at $71.40 when EZA moves above $75. The second option would be to buy in the $71.80-$72.20 area with a stop at $69.30. Then, once above $75, the stop should be moved to $71.39. This has a better risk/reward profile, in my opinion. The risk, if you are filled at $72.19 and then stopped out at $69.30, is $2.89 per share. With a target at $80, the potential reward is $80-$72.19, or $7.81 per share. This is a risk/reward ratio of $7.81/$2.89, or 2.70, which is not too bad.

Tom Aspray, professional trader and analyst, serves as senior editor for The views expressed here are his own.

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on ETFS

Keyword Image
ETFs & the COT
03/19/2019 9:19 am EST

The moves forecasted by the COT signals make them very adaptable to commodity based ETFs, writes And...