Trade Idea: EWY South Korea ETF, Global Tech Proxy, Probes Key Support

10/31/2018 11:35 am EST

Focus: ETFS

Michael Paulenoff

Consultant and Publisher, MPTrader.com

Many Street analysts consider the iShares South Korea ETF (EWY) as a proxy for the health of global technology, the semiconductor sector, the chip sector, and perhaps the retail electronics sector as well, writes Mike Paulenoff Wednesday.

One look at my weekly chart of EWY shows that it has been in the grasp of a major correction or possibly even bear phase since its January all-time high at 79.07 into Tuesday’s low at 56.34, a near 30% decline. This decline has retraced two-thirds of the entire prior advance from the August 2015 low at 42.94 to the January 2018 high at 79.07. One could think that the ugly EWY performance reflected deteriorating relations with North Korea, but, ironically, relations have not been so promising since 1950!

From a macro perspective, we could conclude simply that the tariff spat between the U.S. and China that might be responsible for the implosion of the China equity market has spilled over into the Korean market. Then again, perhaps EWY weakness argues that the global economy is sluggish-to-weak, that demand for gadgets is down or declining precipitously, or that there is an oversupply of chips and gadgets, etc.

The question is whether or not the worst is behind EWY, because if that is the case, then more than likely VanEck Vectors Semiconductor ETF (SMH), PowerShares QQQ Trust (QQQ), and perhaps FAANG are nearing their corrective lows? 

From a technical perspective, EWY is probing very important support at the 57.00 level, which represents the Fibonacci 62% retrace plateau of the 2015 to 2018 advance. As such, EWY needs to contain further selling pressure to avert additional weakness that points to a test of 53.60 (blue support line on the attached chart), if not considerably lower because often a break of the 62% corrective support zone triggers a total give-back of the previous advance.

For EWY to get some upside traction, and to trigger the most preliminary of upside reversal signals, it needs to climb and close above 59.25. Let’s keep an eye on it as a proxy for other technology-related index ETFs.

See chart illustrating the technicals on EWY.

Mike Paulenoff is a veteran technical strategist and financial author, and host of MPTrader.com, a live trading room of his market analysis and stock trading alerts. Sign Up for a Free 15-Day Trial to Mike's Live Trading Room!

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