EWC Lacks Strength

10/22/08 11:21:37 AM

by Chaitali Mohile

The Canada iShares has declined nearly 50% under bearish conditions. The weakness may drag the ETF much lower.

Security: EWC
Position: N/A

The Canada iShares (EWC) has been rallying successfully since April 2007 with a support level at 27. This support level was retested three times during the bullish rally. The stock retraced to the support after every new high -- that is, 32.14 and 36.23. In Figure 1, the average directional movement index (ADX) (14) witnessed a tough fight between the sellers and buyers, and thereafter, the trend changed frequently. In addition, the moving average convergence/divergence (MACD) (12,26,9) was highly volatile in positive territory. But the bullish strength was reflected only by the relative strength index (RSI) (14) as the oscillator sustained above the golden support at 50. The RSI (14) declined from the overbought area, but established support at 50 and rallied back to its bullish zone. So the consistent strength to pull EWC higher was lacking.

At 36.23, EWC plunged to 27, its support level, due to a sudden flow of selling pressure, indicated by the negative directional index (-DI). The RSI (14) also retraced to 50 but bounced immediately to the overbought level. EWC rallied as well to the previous high. The technical patterns formed on Figure 1 were not healthy. The RSI (14) showed negative divergence, and the price chart formed a double top. Both indications were highly bearish. The ADX (14) moved in favor of the bears with robust selling pressure. The volatile volume suddenly dropped as the double top was formed. All three indicators were captured by bearish strength, and therefore, EWC breached the historical support of 27. The slump continued, and the stock hit the lowest level at 17.

FIGURE 1: EWC, WEEKLY. Note the bearish indicators above the bar chart. The oversold RSI (14) may not attract fresh buying.

Graphic provided by: StockCharts.com.

EWC is engulfed by a bearish force after correcting almost 20 points from the top. The RSI (14) is the only indicator that shows the possibility of a pullback rally from the current level. But EWC has always lacked the bullish strength and support from all the three indicators together. The same reason would discourage any pullback from the support at 17. In the past three weeks, the stock has not moved below this level, so we can anticipate a temporary support being established at 17. The ADX (14) indicates a well-developed downtrend, and the MACD (12,26,9) is negative, so both indicators are highly bearish. I would also like to highlight that the oversold RSI (14) may stay in this zone for a long period as well.

Currently, support at 17 may be held, but indicators on the chart indicate weakness. Therefore, lack of strength may keep EWC volatile and it may even decline below 17.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company:	Independent
Address:	C1/3 Parth Indraprasth Towers. Vastrapur
	Ahmedabad, Guj 380015
E-mail address:	chaitalimohile@yahoo.co.in
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EWC Lacks Strength

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