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SUPPORT & RESISTANCE


Italy iShares At Resistance

12/07/10 11:03:08 AM
by Chaitali Mohile

The potential bullish breakout of the Italy iShares could come to an end because of various resistance levels.

Security:   EWI
Position:   N/A

The Italy iShares (EWI) has been showing weakness from October 2009. The index lacked strength to reach its previous high above 20 levels. EWI plunged below the 50-day moving average (MA) support, forming lower highs on the weekly time frame in Figure 1. The 200-day MA resistance was not even touched during the earlier pullback rally. The average directional index (ADX) did not indicate an uptrend. The trend turned weaker, but the bearish pressure gradually improved. However, EWI began to climb with the support of the 13 levels before a downtrend was developed. The rally faced first resistance by the descending trendline drawn in Figure 1.

FIGURE 1: EWI, WEEKLY
Graphic provided by: StockCharts.com.
 
Along with the trendline, the 50-day MA resistance also restricted the intermediate pullback rally, and the index drifted a few points lowers. But the increasing volume protected the rally by retracing it towards the support at 13 levels. Eventually, the index breached the first trendline resistance in Figure 1 but paused near 18 levels. Here, we can see another trendline (dotted) drawn by joining the previous lower highs and the one formed in October 2010. The index plunged from the dotted trendline resistance and is likely to get trapped between the support/resistance of the trendlines and the 50-day MA resistance as well.

The ADX (14) continues to remain weak, but the volatile moving average convergence/divergence (MACD) (12,26,9) has moved into positive territory. Currently, the gap between the MACD line and the trigger line has dwindled, indicating a diminishing momentum in the rally. In such a scenario, the MACD would undergo a bearish crossover by moving below the trigger line. Therefore, the rally is likely to get crunched between the support and the various resistances on the weekly time frame.

FIGURE 2: EWI, DAILY
Graphic provided by: StockCharts.com.
 
After establishing support at 15 levels, EWI is trying to initiate a fresh bullish rally by breaching the robust 200-day MA resistance. During the process, EWI has formed a three white soldiers bullish reversal candlestick pattern in Figure 2. The candlestick pattern is a bullish formation that reverses the existing downtrend. As such, the downtrend for EWI was not well developed but the selling pressure was huge on the bearish rally from 18 to 15 levels.

The third candle of the formation has closed above the 200-day MA resistance. However, we would need additional confirmation for the breakout of EWI. For the stable rally, the index has to open with the 200-day MA support on the following session (December 6). The fresh rally above the long-term MA has two resistance points on the bullish path. The support/resistance line in Figure 2 shows resistance at 17 levels, followed by the 50-day MA resistance.

Considering the huge selling pressure and the ADX line position, the downtrend is developing. In addition, the negative MACD (12,26,9) in Figure 2 is ready to turn positive after a bullish crossover in the next few sessions.

Thus, the EWI breakout would fail under these various resistances on the daily as well as weekly time frame.




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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