With the U.S. markets rather lethargic and showing a lack of conviction lately, we have been scanning for potential swing trading setups among the international ETFs. Most of the international ETFs we looked at have badly damaged weekly chart patterns that we are not interested in trading because it goes against our core trading strategy. But one international ETF in a nice consolidation pattern, poised for a breakout to a new record high is iShares Mexico ($EWW). On the long-term monthly chart pattern below, which shows you the “big picture” of its trend, notice that EWW is presently testing technical resistance of its all-time high. If it breaks out above the horizontal line annotated on the chart, there will be a complete lack of overhead supply and price resistance that should enable EWW to zoom higher:
Drilling down to the shorter-term daily chart (below), notice that EWW has been forming a valid base of consolidation near its high for the past four to five weeks. The daily trading range is also tightening up, which is positive, while the 20-day exponential moving average (EMA) is rising to provide support. Finally, volume has also been lighter than average during the consolidation:
As the chart above shows, a rally above the $63.85 level would correspond to a breakout above the July highs of EWW, which converge with resistance of its April 2012 high. Although resistance of its all-time high (shown in the first chart) is actually about one point higher, we would be comfortable with buying a breakout just above the $63.85 level because momentum from such a breakout would likely cause EWW to surge through that price resistance from years ago. Alternatively, one could buy a partial position on a move above $63.85, and then add to it on confirmation of the rally above the $65 area. EWW is unlikely to move above our trigger price in today’s session, but it will be on our official ETF trading watchlist as a potential breakout entry next week.
Overall, the stock market continues to show considerable resiliency, as it continues to consolidate on lighter volume at its three-day highs. The price and volume action is actually reminiscent of what we saw when the market broke out of its summer slump in 2011. At least for the moment, it appears the market bulls are maintaining control in what has been a choppy environment. If we can just see continued improvement in leadership among small and mid-cap growth stocks, that would surely be positive for the broad market.