Tuesday, December 14, 2010

EPI Watch

The Wisdom Tree India Earnings fund (EPI), the largest of the exchange-traded funds oriented toward India, moved to bull phase on Person's Proprietary Signal (pps) and the macd on the fourth daily price run-up. The on-balance volume has yet to set a higher high, but it is moving up sharply in that direction.

ppspsarmacd obvh-a trend ma20ma50ma200
EPI $25.70

I'm interested in country funds like EPI because of the diversification they bring to my portfolio.

Let's face it: Stocks traded on the U.S. exchanges, and bonds issued by American corporations or the government, are all marching to the beat of the same drummer. They're part of a single, tightly integrated ecology.

Country funds like India's EPI, or Brazil's EWZ, China's FXI and Russia's RSX, are truly different. They're influenced by regulatory policies, geo-politics and central banks that often behave in ways that have nothing to do with the United States and its markets.

In the most apocaplyptic fantasies, they may in fact prosper while the U.S. dollar is collapsing around the heads of all but the most fervent goldbugs.

And they are exchange-traded funds (etf), so they provide local diversity within the global diversity they bring to the table.

The problem is, diversity brings risks. One risk is the knowledge gap. I know the U.S. markets and their ways quite well, having traded in them for 30 years. I know the regulatory issues and politics that impinge on the American markets.

I can't say the same for India, Brazil, China, Russia or even the euro-zone, the U.K. and Canada. They're just not part of the world in which I grew up and live. Also, the United States under the SEC is known for the transparency of its corporate reporting. That's not the case in many other countries.

Even the local diversity of an etf brings risk to the trading station, because I can't easily learn the financial health of the stocks that make up the etf. I can get a quarterly list of the top holdings, and calculate them, but that still leaves a portion of the fund invisible to me. And if it's an actively managed fund, I have no way of tracking whether the stocks on the quarterly report are still part of the etf, or have been replaced by some other holding.

That's all aside from the hassle of finding the financials of dozens of companies, whereas for a single U.S. stock, I can get learn the return on equity, the debt/equity ratio and the level of institutional ownership in about five seconds.

I checked out the top four holdings of EPI, and was able to get the return on equity for only one of them. Perhaps with greater zeal for the research, I could find the answers. But who has the time for that?

So with an exchange-traded fund, and especially a country fund, I must fall back entirely on the chart and technical analysis.

In that regard, EPI looks good: rising price, bull phase across the board, a rising on-balance volume to show that traders are really putting some skin the came. True, the stock is above the 20-day and 200-day moving averages. But it is below the 50-day ma, which is in an atypical position, so that's a bit troubling.

On the Person's chart, the price is just above the weekly midline.

Person's Table
ppspps openupper pivotlower pivot
EPI $25.70 $25.64 nov14 $26.90 +4.7% $24.38 -5.1%

Also, the price is about 50¢ away from hitting an early December resistance point, at the top of the last bull phase. So that sets a 2% or so limit to the easy upside gain.

Reversal Levels
  • $28.72, +11.8% (all-time high)
  • $26.26, +2.2% (recent swing high)
  • $25.70 --- You are here.
  • $24.59, -4.3% (recent swing low)

Given the unknowns of exchange-traded funds, perhaps it is best to treat them as a slow plays, using the 50-day and 200-day moving average crossovers. For EPI, that system dictated entry in May 2009, when the price was about $12.85, and the 50-day moving average would have to move from its current level of $26.77 down to below $24.19 to signal an exit.

My rule on slow trading is to not enter once the moving averages and price have moved significantly beyond entry signal levels.

Bottom line, I say without a great degree of conviction: The chart's pretty good on the signals but not on the resistance levels. It's not a blue-sky stock.

I would like EPI better if the price were to break above the recent swing high of $26.26. Until that happens, I'll pass on opening a position for my own accounts.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

  • h-a trend - Heikin-Ashi trend.
  • obv - On-Balance Volume.
  • pps - Person's Proprietary Signal.
  • psar - Parabolic Stop and Reverse
  • ma20 - 20-day moving average
  • ma50 - 50-day moving average
  • ma200 - 200-day moving average
  • macd - Moving Average Convergence-Divergence

About the glance: The colors indicate the state of each signal.
  • Signal Section:
    • pps, psar, macd: green for bull mode, red for bear.
  • Confirmation Section:
    • obv: green for uptrending, red for downtrending.
    • h-a trend: green for uptrending, red for downtrending.
  • Environment Section:
    • ma20, ma50, ma200: green for above the average, red for below the average.

No comments:

Post a Comment