Don’t Forget About Taiwan
- Posted by JC Parets
- on December 3rd, 2012
To continue with our Bullish Asia theme from a few weeks ago (see China and Japan), today we move to the small island of Taiwan. We’re seeing some extremely constructive action out of this area and I’d be surprised if we didn’t see a breakout soon.
We’re looking at the iShares MSCI Taiwan Index ETF ($EWT). The key area that we’re watching is the range between $13.50-14.00. This level goes back to 2010, where we saw a little bit of consolidation before continuing higher. That same price level was the key support from that double top in 2011. The $2.25 or so measured move from that bearish topping formation took Taiwan down to $11.50, where we seem to have found a bottom.
Now here we are back at this $13.50 area. After testing resistance a couple of times last Fall, then again in March this year, and one more time in September, this is arguably the fifth test of the important level. As always, the more times that a level is tested, the higher the likelihood that it breaks. It looks to me like a breakout here is eventually coming and the target would be that double top from last year up near $16.
From a risk management perspective, we need to find a decent pivot point from which to trade off of. Right now there seems to be an awful lot of risk to the downside without a fixed exit point. We’re going to let this one play out and let it come to us. Perhaps we play the breakout and retest up near $14. And maybe we come back towards that 200 day moving average (red line) that may present us with a nice entry point. Either way, we want to know our out before getting in.
But the reason I bring this up is really because of the constructive action that we’ve seen over the last 15 months or so in $EWT. To me, it seems like a pretty solid base from where we could see lift off. This is not the kind of action that we’d expect to see in a risk-off environment for Stocks as an asset class. So we find this really interesting from a more macro point of view.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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