Option Investor
Market Updates

Some bullishness from the land down under

Printer friendly version

I had a stimulating conversation today with a subscriber that had some questions regarding what was taking place to the south east of the United States on an island call "Australia." My goodness, what a strange request I thought. Who in their right mind would consider trading a bunch of illiquid penny stocks that most investors have shunned over the years?

However, as our conversation played out and I started punching up some charts based on some comments this subscriber had read from somewhere, many of the "price targets" mentioned in that newsletter came very close to the point and figure bullish counts we find in the charts. Almost like some other newsletter was using the supply/demand charts to forecast future price targets and lay out some scenarios.

One chart I found compelling was the Australia iShares (AMEX:EWA) $10.58 (unch) which just recently broke to a multi-year high! To me, this perhaps gives credence to observations made in recent weeks that some assets were leaving the states and looking for opportunities oversea. First it was Japan and the Japan iShares (AMEX:EWJ), now Australia?

Australia iShare Chart - $0.125 box

The point and figure chart of the Australian iShares (AMEX:EWA) definately shows that demand is in control of this market. The bullish vertical count from $7.75 to $9.50 and long column of X there shows some fairly committed and determined buying, as if somebody (the MARKET) saw a longer-term bullish situation.

It's noted that the major buy signal at $9.88 on the above chart comes at about the same time that the U.S. market averages recently hit a relative high in March (red 3). The continuation higher in the EWA is a telling DIVERGENCE that some bullish cash is staying in the land down under.

Australian Dollar June futures (ad02m) - Daily Interval

Just as we've seen strength in the Yen versus the U.S. Dollar and noted bullishness in the Japanese equity markets, we see the same thing in the relationship between a strengthening Australian Dollar and Australian equities.

The subscriber I talked to said he read somewhere that "the Australian dollar may achieve the 0.60 level near-term." That ties in pretty darned close to the point and figure charts bullish vertical count. With retracement overlaid, there is some compelling correlation between the retracement levels and how the Australian Dollar has indeed been traded.

For now, and investor/trader could establish 1/2 bullish position in the Australian iShares (AMEX:EWA) $10.58, then look to correlate any type of pullback in that security with a pullback in the currency futures of 0.547 as a level of support.

The EWA looks to have more longer-term upside than the currency based on the point and figure charts. However, as you've see over time, stocks in longer-term upward trends will give "sell signals" from time to time, then turn higher, generate a new buy signal that then establishes a new bullish count, which can be higher than the first bullish count.

As it relates to currency futures, please remember that the June futures contract is just that. It will go "poof" or expire in June. It could very well trade higher than the 0.59 level over time. However, we can start here and as time passes, follow the retracement bracket levels with a 0.59 target in mind.

I'm not interested in Australia or Japan!

This may be the thought of many traders that only are wanting or willing to trade U.S. equities. That's OK. If the Japan ishares (AMEX:EWJ) and Australian iShares (AMEX:EWA) have been bullish while the U.S. equity market has been more bearsh, then at least monitor Australia and Japan for any weakness, that might then confirm bullishness for the U.S. equity markets.

Money rotates and it knows no boundaries. All any investor wants to do is make money and it will usually rotate to the best opportunities where reward outweighs risk.

Thanks to the subscriber that alerted me/us to this. I'll admit, I've had little intuition to look at other foreign markets other than Japan. I've got a lot of work to do! Keep the ideas and various thought of yours coming!

Jeff Bailey
Senior Market Technician
Option Investor

Intraday Update Archives