Global ETFs Gearing Up for Another Run

Many international ETFs have shown relative strength to the U.S. markets since the intermediate-term bottom formed in late November. While the S&P 500, Dow and Nasdaq remain stuck below their 50-day moving averages, numerous international ETFs have broken out above their 50-day MAs. As such, one could expect the international markets to generally show leadership when the U.S. markets bounce.

The best of these ETF setups for potential buy entry right now are those that have broken out above, then pulled back to support of, their 50-day MAs. One such ETF is the iShares EAFA Index (EFA - commentary - Cramer's Take), which follows a broad index of Europe, Asia and the Far East:

iShares EAFE Index TradeStation

On Dec. 16, EFA firmly broke out above resistance of its 50-day MA. It subsequently consolidated for one day, then gently pulled back for several days, alongside the broad market. However, notice how the pullback is now finding key support at convergence of both its 50-day (the teal line) and 20-day (the beige line) moving averages. Since those moving averages previously acted as resistance, they should now provide support.

Further, the dashed horizontal line marks new support of the prior highs from late November, which EFA bounced off of on Dec. 23. With three significant levels of support just below its current price, a new buy entry into EFA at current prices provides a very positive reward/risk ratio. To keep risk minimal, consider a stop just below the Dec. 23 low of $41.97, minus some "wiggle room" of 50 cents to a dollar. If the low of the pullback holds, consider a short-term price target near the Nov. 4 high, around the $47.50 to $48 level.

Another international ETF with a similar pattern is iShares Emerging Markets (EEM - commentary - Cramer's Take):

iShares Emerging Markets TradeStation

Technically, EEM is actually showing a bit of relative strength to the more diversified EFA, as its 20-day EMA has already crossed through and above the 50-day MA, which EEM is still above as well. With such a tight range over the past two days, I like EEM for buy entry if its rallies above its high of the past two days. A stop could be placed below the Dec. 9 low of $23.28, as the previous day's price gap should act as support. A stop below that level also is below support of the 50-day MA. As with EFA, a realistic short-term price target is resistance of the Nov. 4 high (around $27.50).

---

At the time of publication, Wagner was long FXI and INP.

Deron Wagner is the founder and head trader of Morpheus Trading Group. His daily focus is managing and trading the Morpheus Capital Hedge Fund, which he founded in April of 2004. He also teaches his trading methodology with The Wagner Daily, The MTG Stalk Sheet, and The Wagner Weekly newsletters.