It’s not everyday you see people talking about Malaysian Equities, but since I have no idea what the S&P 500 is going to do, I’m left to look for non-correlated assets to trade. EWM, has a monthly correlation of .76, a quarterly correlation of -0.34, and a yearly correlation of -0.31 with the S&P 500. I do have a concern that it’s been highly correlated to oil on those timeframes, but since I’m keeping a tight stop, the risk/reward and other factors outweigh this concern.

Seasonally, we are at the tail end of the best 5 month period of the year for Malaysia. April is the largest concern for the first six months of the year, with an average return of -1.96%.

On the weekly timeframe, there are a few things I like about how this ETF is setting up.

1. Our weekly price target at the 161.8% extension of the 1/14 low – 8/14 high met.
2. False breakdown below the 2011 support and 161.8% extension.
3. Strong weekly candle off support, with follow through as we closed at the highs of the week.
4. Relative strength vs the S&P 500 is at the ’06 support level and turning higher. 
5. A positive momentum divergence is present. 

EWM Weekly

 

 

 

 

 

 

 

 

 

 

The daily chart confirms what we’re seeing on the higher timeframe and outlines our tactical trade setup.

1. There is a positive momentum divergence present.
2. Prices have broken below and closed back above the 2011 lows, prior pivot low of 12.89 and the 161.8% extension at 13.07.
3. Prices broke above trendline resistance and closed on the highs of the day. 
4. Prices are 15% below the 200 day, leaving plenty of room for mean reversion. 

EWM Daily

 

 

 

 

 

 

 

 

 

 

EWM
Entry 13.29
Stop 13.05
Target 15.00
Risk / Share 0.24
Reward / Share 1.71
Risk / Reward 7.13
Total Risk 72.00
Total Reward 513.00
Return on Invested Capital 12.87%

For me, there is no reason to be long unless we continue to close above this downtrend line and the 161.8% extension of 13.07. I will be adding a second half of the position on a close above 13.60, represented by the gray shaded area of resistance just overhead.

Some may choose to give the position more room, but from a tactical perspective, I’m comfortable with getting stopped out at a 7:1 risk/reward and trying again when price tells me that it’s ready to go higher.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.

Paper Portfolio Update: Long EWM (Malaysia ETF)