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High probability trade sets up in EWH as long and short term bullish patterns converge

May 01, 2011 12:52 PM ETEWH
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What’s interesting about the current chart pattern in the iShares MSCI Hong Kong Index Fund ETF (EWH) is that a tight consolidation triangle pattern is forming right up against resistance of the downtrend line that identifies the parameter of a five month corrective base. This base is a long term Bullish Flag formation with the triangle part of a Bullish Pennant pattern – a pattern within a pattern. EWH Weekly Chart

A move above the downtrend line ($19.67) will signal a breakout of both the long term Bullish Flag and short term Bullish Pennant, thereby strengthening the setup.

The Pennant allows for tighter risk management as a move below the trend line support (see orange line) at the bottom of the pattern, ($19.15) will identify failure in the short term (at a maximum). Tighter risk management can also be used. Other supportive bullish signs include: EWH Daily Chart

Long Term (weekly chart):

-during recent five month correction support of the 50ema held

-12ema stayed above the 21ema during correction

-Bullish Pennant is forming just above support of the 21ema and right at support of the 12ema

-volume has been declining during correction

-most of the Flag occurred above the 61.8% retracement support level of the larger downtrend

-Flag is only the second base formation after coming off the March 2009 low

Short term (daily charts):

-horizontal support of the Pennant is identified numerous times (horizontal grey line - circles)

-successful test of both the 50ema and 21ema during recent pullback

-failed to stay below the 200ema

(www.etf-portfolios.com)

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