2 ETFs Riding China's Wave

01/18/2013 10:15 am EST


Thomas Aspray

, Professional Trader & Analyst

The strong rebound of China’s economy is likely to provide a further boost to global stock markets, with two ETFs poised to benefit the most from the ripple effect, says MoneyShow’s Tom Aspray.

Stocks were strong Thursday as the S&P 500 and Spyder Trust (SPY) closed above the September 2012 closing high. This confirms the end of the correction and was consistent with the leading action of the market internals. Further gains are likely the next week or so but I would not chase stocks or ETFS that are well above support as one should focus on the entry level.

Overnight news on China’s GDP beat analyst’s estimates as it improved nicely from the prior quarter. This provides further evidence that their economy has turned around. I have been expecting a soft landing since last spring and continue to believe that their resurgence will have a positive impact on the global economy.

China’s neighbors are likely to get the most benefit from this turnaround and these two Asia country ETFs have traded in a tight range for the past few weeks. The volume analysis suggests that they are likely to breakout of these trading ranges soon and new long positions are recommended.

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Chart Analysis: The Spyder Trust (SPY) surpassed the 2012 high at $148.11 Thursday, which completed a five day trading range.

  • If the rally from the December low is equal to the rally from the November lows, the 100% or equality target is at $150.47, which is very close to the quarterly R1 resistance at $150.58.

  • Next week, the starc+ band will be at $151.70 and the upper boundary of the trading channel, line a, is now at $152.50.

  • The NYSE Advance/Decline line broke out to new highs in December (line 1) as resistance at line c was overcome.

  • This was a bullish signal, which allowed one to confidently buy on dips as higher prices were expected in early 2013.

  • The A/D line pulled back to its WMA before turning sharply higher.

  • A similar sharp rally by the A/D line in early 2012 signaled a three-month rally.

  • The McClellan oscillator turned up Thursday, but at +133 is well below overbought levels at +300.

  • SPY has initial support at $146-$146.50 with further at $145. The quarterly pivot is at $142.64

The iShares MSCI Indonesia Investable Market Index (EIDO) has assets of $387 million with 59% invested in its top ten holdings. Since October 2012, it has traded in a range from $31.18 to $29.45. It has a 1% yield.

  • The downtrend on the weekly chart, line e, is now at $31.05 with the early 2012 high at $32.06

  • The all-time high at $35.16 was made in August of 2011.

  • Volume has been very heavy this week and has exceeded the daily average on two days by two-three times.

  • The on-balance volume (OBV) has turned up from support, line g, and has now moved back above its WMA.

  • EIDO is holding just above its quarterly pivot at $30.41 with more important support at $29.50.

NEXT PAGE: Riding the Ripple Effect


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The iShares MSCI Singapore Index (EWS) has $1.5 billion in assets with a yield of 4.01%. It has 64% in its top ten holdings and has been in a steady uptrend since the June 2012 low at $11.32.

  • For the past seven weeks, EWS has been in a fairly tight trading range.

  • There is initial resistance at $13.90 and then at $14.26, line a. The 2011 high was $14.61.

  • The on-balance volume (OBV) shows a pattern of higher highs, line c, which confirms the price action.

  • The OBV has been declining for the past few weeks, but is above its WMA and support at line d.

  • There is minor support now at $13.43, which corresponds to the quarterly pivot and the 20-week EMA.

  • Further support at $13.25 with the weekly uptrend, line b, now at $13.13.

  • The November low was $12.62.

What it Means: The China ETFs in our holdings, Guggenheim China Small Cap (HAO) and iShares MSCI China Index (MCHI), both show nice double-digit gains but are likely overextended short-term.

I expect China’s growth to be bullish for all of Asia and the tight ranges in these two ETFs should allow for a good entry level and a well-defined risk. Risk is one of the five rules that traders and investors should concentrate on in 2013.

How to Profit: For iShares MSCI Indonesia Investable Market index (EIDO), go 50% long at $30.44 and 50% at $29.92, with a stop at $28.54 (risk of approx. 5.4%).

For iShares MSCI Singapore Index (EWS), go 50% long at $13.60 and 50% at $13.35, with a stop at $12.51 (risk of approx. 7.1%) On a move above $14.03, raise the stop to $13.13.

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