One of the things that we pride ourselves on at our shop is looking all over the world at various countries and asset classes for only the best risk/reward opportunities. Coming into the week, Malaysia has been setting up for what I think could be a violent mean reversion to the upside. In 2014 the MSCI Malaysia ETF $EWM lost close to 15% for the year while the S&P500 rallied over 11%. I think we’re about to see money rotating into Malaysia at a faster rate that the U.S.
First off, here is a longer-term look at EWM going back to the bottom in 2008. We are looking at a weekly bar chart showing prices currently bouncing off potential support near the 38.2% Fibonacci retracement from the entire 170% rally from 2008 to 2014. This level also sparked the last leg of this up move starting at the end of 2011. You see that failed breakdown in September 2011? Nice right?
The next one is a daily candlestick chart where I included a 14-day RSI to represent momentum. What stands out most to me is here are the fresh lows to start the year that quickly reversed back up above the mid-December lows. This brief failed breakdown accompanied by a bullish momentum divergence simultaneously is enough for me to start to pay attention. This is especially the case when we have a key long-term Fibonacci retracement level right at this price, as we can see in the chart above:
Risk management wise, this is only something that we like above this year’s lows, and even better above this week’s lows. If prices are below that then I don’t think there’s anything to talk about on the long side. If this bullish momentum divergence fails, then we absolutely do not want to be in this. Above it and we have a nice upside target near the 200 day moving average above 15. This makes the risk/reward very much skewed in favor of the bulls.
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Tags: $EWM $SPY