Chile is Flirting with Former Support

One of the things that we pride ourselves on is the ability to use our tools as technicians to look at countries all over the world. The charts represent the price history so we can compare countries and regions with each other to see where the strength is and which countries are weaker.

Today we are focusing our attention on one of the worst bear markets on earth. Chile would need to rally over 75 from current levels just to get back to where they were 3 years ago. Chile is not only underperforming Equities as an asset class, but it is some how undereprforming emerging markets as a group. This has been one of the worst places to be for years. Last year for example, Chile lost 25% for 2013 with the S&P500 was UP 30%.

The reason I find this chart interesting is because with the recent strength out of emerging markets the last couple of weeks, the iShares MSCI Chile ETF $ECH has managed to rally back to last year’s critical broken support:

4-2-2014 ECH daily

We know from our polarity principles that former support should become resistance on the first attempt to get back above. In this case, demand overwhelmed supply around the $46 level in August and again throughout December. Once supply took control, prices declined another 13%. Now that we’re back towards 46, will the overhead supply take over once again? Or is there enough Demand to break through?

Here is the longer-term view so we can see how important this level is from a structural perspective. Now only was it support during the second half of last year, but it also represents the 61.8% Fibonacci Retracement from the entire 2008-2010 rally. It will be interesting to see if the bulls can manage to regain control of this 46 level. If it does, there is a ton of upside in this name.

4-2-2014 ECH

A real breakout and rally here in Chile could tell us a lot about emerging markets as a group. With Chile as one of the worst in the space, new leadership there would be telling.

Stay tuned…

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Tags: $EEM $ILF $ECH $SPY


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