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ETFs: Put EPU on Your Watch List

Stocks in this article: EPU

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK ( ETF Digest) -- South America has largely been able to escape the worst of the damage of the U.S. financial and housing collapse as well as the European bond crisis.

Along with Brazil and Columbia, Peru is the third horse of the South American trifecta. Peru boasts an economic success story of 7% GDP growth, a minimal 2% inflation and a thriving middle and upper middle class population. Like much of South America, Peru holds a wealth of natural resources, especially in the mining of copper, gold, silver, zinc, lead, and coal. But Peru is by no means a one trick pony. Peru's economy consists of manufacturing of machinery, pharmaceuticals, chemicals, textile and agriculture. Peru not only thrives on its exports bringing hard currency into the country, but an internal growth of one of the highest per capita incomes in South America. The country has only had one negative GDP year (1998) in the past two decades.

Peru's stable currency and government is considered one of the least corrupt in the world. It has free trade agreements with the U.S. and most of its South American trading partners. Since 1995 drug trafficking of cocaine has largely been eradicated.

iShares MSCI All Peru Capped In (EPU) is the ETF to have exposure to Peru's wealth of natural resources.

EPU is heavily weighted in mining stocks and basic materials comprising 45% of its top ten holdings and 63% of its total composition. This is unusual weighting for a single country ETF which tend to be weighted to banking. This ETF only holds 23% in the financial sector of Peru.

However, there is diversity in the mining industry. When global economies falter, gold and silver fare well. In economic growth, copper and coal (coke) are among the top performers in basic materials. Peru's zinc mining companies benefit from the rise in electric vehicle manufacturing.

A nice little bonus with EPU is a 2.29% dividend.

EPU is currently at upper trend and longer term price resistance. It may be forming a consolidation for a price breakout.

There are positive indicators that are pointing to a breakout. First was a recent "golden cross" of the 50-day moving average crossing above the 200 day moving average and a follow through rise in price with stable volume. The Money Flow Index indicates a sustained demand in this position. Stochastics has a rising trend of higher lows.

There are some caution signs in the near term on the chart. MACD is currently in decline and we'll need to see its histogram move into positive territory to call this a buy. Additionally, on the +/- directional index at the bottom of the chart, we the bulls and bears are about to square off head to head. Bears have the advantage of momentum but as long as the price continues achieving higher lows, the bears won't have much of a fight.

Put Peru (EPU) on your watch list. Look for a volume spike on a green candle or a breakout and holding above $45.00 for a buy signal.

Disclosure: At the time I writing, I have no position in EPU.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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