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Trade of the Day: Peru ETF (EPU) trapped in a downward channel

|Includes: iShares MSCI All Peru Capped ETF (EPU)
The Ishares Peru exchange-traded fund (NYSEARCA:EPU) has been caught in a near-perfect downwardly trending channel since the beginning of the year (see weekly chart below). The distance between channel highs and lows is around nine dollars. For the past two days, the stock has been unable to climb above its channel high and looks to be in the process of moving back down again.

The trade would be to short the stock today at $41 and ride it down to around the $32-$33 level, or until it shows signs of reversing direction. (Every reversal has always been accompanied by a bottoming tail.) Set a stop-loss for just above the upper channel–around $41.25 or above. There are options for this issue but they are very thinly traded and not recommended.

Note: Into channeling stocks? Check out our Daily Blue Plate Specials subscriber services which includes a database of channeling stocks. (Currently, there are 43 stocks in the channeling database.]

This article was originally posted on the Stock Market Cook Book website on Oct. 28.

Disclosure: Dr. Kris currently holds no positions in EPU.