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TREND-CHANNEL


Malaysia iShares Retrace To 2006 Low

11/13/08 12:03:56 PM
by Chaitali Mohile

After the breakout of head & shoulders top reversal pattern, Malaysia iShares has retraced to its 2006 low.

Security:   EWM
Position:   N/A

Malaysia iShares (EWM) formed head & shoulders top reversal pattern with neckline support at 10.5. The uptrend reversed as EWM violated the neckline support in July 2008. The freshly formed neckline resistance was retested immediately after the breakdown. The small black square in Figure 1 shows the consolidation phase. The average directional movement index (ADX) (14) indicated a developing downtrend. The full stochastic (14,3,3) moved into oversold territory, indicating higher bearish pressure. After the breakout, the minimum estimated level is 14.05 (top) - 10.5 (neckline) = 3.55 - 10.5 (neckline) = 6.95. In Figure 1, we can see that EWM has plunged lower than the target level at 6.95. The falling wedge, a bullish pattern, was formed during the downside journey. Volume declined with the descending price.

FIGURE 1: EWM, WEEKLY. The head & shoulders top reversal pattern breakout has moved below the estimated levels. EWM has established support at the previous low at 6.50.
Graphic provided by: StockCharts.com.
 
The weekly chart (Figure 1), with three years of data, shows the previous low at 6.50. This level has offered strong support to the declining rally below the target (6.95). We can see that the stock recovered from the lowest level at 6.20, later established the support at 6.50, and surged. We cannot anticipate a successful pullback rally here, but a rangebound move is indicated by the indicators and the price momentum as well. The ADX (14) is highly overheated and is almost ready to decline. The declining indicator does not mean a trend reversal, but that the downtrend would turn moderate. The stochastic (14,3,3) in Figure 1 is forming higher highs from an oversold territory at 20. The oscillator is indicating bullish force, but the volatility is also higher. So the price may not sustain at higher levels during the rally.

The trendlines of the falling wedge shows the range for the price movement. The falling wedge gives a bullish breakout, so the price movement near the upper trend line resistance should be watched.

FIGURE 2: EWM, DAILY. The downward sloping channel shows exact trading range.
Graphic provided by: StockCharts.com.
 
Figure 2 shows the perfect trading range and lowest possible support if the lower trendline of the channel is violated. According to the price channel, the range for intraday trading is 7.50-6.50. The downtrend is well developed as indicated by ADX (14), with the stochastic (14,3,3) moving below the overbought area. So currently, EWM is ready to retrace the lower trendline. Traders should also consider the lowest support at 6.20 during the rangebound movement.



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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