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Market Vectors Vietnam ETF Pivot Hunting

|Includes: VanEck Vectors Vietnam ETF (VNM)

This past week saw heavy dumping of the Market Vector’s Vietnam ETF (NYSEARCA:VNM) to new all-time lows. On the week, it shaved off over 10% as the State Bank of Vietnam increased interest rates to slow inflation. Hence, the sell-off was driven primarily by fear of tightening monetary policy. On May 17th, the repurchase rate on the 7-day maturity was raised 1 % to 15%. Inflation remains an issue and many investors fear higher interest rates are coming. According to Bloomberg, inflation was 17.51% in April.

Looking at the daily chart of the ETF, we can see some firm selling right into a key oversold area, which triggered my screener in StockFinder. Although this is a normally low-volume ETF (30 day average volume is about 180 000 shares), we had the highest volume on record of nearly 800 000 on Thursday, when the ETF sank through the previous $22 support level of its August low. As of Friday’s close, it was trading at $20.89, which was the day’s low. Figure 1 shows the daily chart.

Figure 1: Daily Chart of VNM. Note the oversold closing price and the break of prior $22 support. Chart generated in Stockfinder 5.0 by Worden.

Figure 2 shows the RSI of VNM. The current RSI value is 22.27, below the oversold level of 30.

Figure 2: Daily RSI of VNM. Note the recent sharp turn downwards below the 30 level. Chart generated in StockFinder 5.0 by Worden.

As a pivot hunter, I try to identify opportunity arising from fear. While forecasts of tightened monetary policy and higher interest rates invariably spell trouble for long term investors, I seek to isolate short-term tradable opportunities. Over-reactions such as those triggered by fear and future economic uncertainty tend to produce great long swing trades (1 to 3 day time horizon). On the other hand, searching for these pivots tends to have inherently higher risk. As such, hedging is an important and necessary element when seeking such opportunity. CPI numbers for Vietnam are expected in the coming week. This ETF currently has a lot of negative sentiment baked into the price. It is going to take some horrible numbers to send the price on another downward spiral like that we saw on Thursday. What I will be looking for is a sharp downward spike on high volume with the release of the numbers. The market will not bounce until the weak hands are completely scared out of their long positions.

This is merely an “if and when” type of trade. I believe that VNM is setting up for a good swing trade bounce, which can be played if we get the definitive shake-out that I am looking for. Should the CPI numbers come in much lower than expected and the market bounces, I will not be looking to get in on the play, as it may be too late. I will be looking for a sharp downward spike, with an entry on hyper-extended downward selling pressure intraday – perhaps near or below the $20 even level.