Exchange-traded funds that track countries offer two powerful advantages over mainstream equities. First, they let investors reduce exposure to region-specific economic disruptions, like slowing growth and the credit crunch. Second, they increase exposure to profit engines that are much stronger than the U.S. and other crisis-plagued nations.

But these unique financial instruments aren't for everyone. In particular, they're a bad choice for short-term traders, because overnight gaps occur frequently, making it hard to exercise tight risk control. These disruptions take place for a variety of reasons, from fund component news shocks to obscure bureaucrats making ill-timed declarations.

As an example, the iShares MSCI Mexico Index Fund ( EWW) gapped down more than 2% on Friday, after American Movil ( AMX) reported weak earnings. Consider the sizable trade risk if you didn't know this issue was heavily weighted in the fund, or that it was scheduled to file its quarterly report on Thursday evening.

Realistically, it's a tough chore to keep track of another country's obscure news flow. That's why these world funds work much better as long-term investments. Over time, the underlying equity basket dampens the impact of component-specific shocks, washing out the influence of one-time events such as the American Movil shortfall.

OK, let's get down to it. I searched my database over the weekend and pulled up five country-based exchange-traded funds that fulfill two specific criteria. First, they're exhibiting stronger performance than the U.S. indices so far in 2008. Second, recent price action shows the development of lower-risk entry levels for interested investors.

iShares MSCI Brazil Index (EWZ)
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Source: eSignal

The iShares MSCI Brazil Index ( EWZ) ETF is a current pick in my TSC newsletter, The Daily Swing Trade. The fund rallied to a new high at $87.67 in November and pulled back. Selling pressure accelerated into January, when price struck a notable low at $64. It recovered quickly from that level and returned to the high in February.

That recovery effort fizzled and gave way to a downturn that retraced 62% of the post-January bounce. The stock then resumed its uptrend, returning to the high for the third time last week. This price action completes a six-month cup-and-handle pattern that should yield a strong breakout in coming weeks.

iShares FTSE/Xinhua China 25 Index (FXI)
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Source: eSignal

The iShares FTSE/Xinhua China 25 Index ( FXI) ETF rallied to an all-time high in October, in the latest leg of a powerful rally that began in 2005. The stock then entered a deep correction that almost cut the shares in half by the March low. It bounced strongly at that level and stalled at 200-day moving average resistance in early April.

Note how price action between January and April carved out a well-organized basing pattern that converged with the 200-day moving average. The fund gapped above that level last week after Chinese officials lowered the stamp tax for equity transactions. This breakout sets up a major recovery that could eventually lift price back over $200.

BLDRs Emerging Markets 50 ADR Index (ADRE)
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Source: eSignal

The BLDRs Emerging Markets 50 ADR Index ( ADRE) ETF is a unique instrument comprised of blue-chip stocks from all over the world. It currently features a heavy weighting in China and Brazil. The fund hit an all-time high at $60.31 in late October, pulled back, and bottomed out with other world markets in January.

Price action shows uneven progress since the first-quarter low, with a deep March pullback that found buyers in the mid-$40s. Momentum has perked up since then, lifting price over 200-day moving average resistance. The recent breakout above the six-month trend line was a notable achievement that sets the stage for a continued recovery.

iShares MSCI Spain Index (EWP)
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Source: eSignal

The iShares MSCI Spain Index ( EWP) ETF posted a notable high in the fourth quarter, just like other instruments reviewed in today's column. It took a similar downside path into January, bottoming out with the world markets. The recovery since that time has been slow and steady, with a graceful series of rally waves followed by shallow pullbacks.

Progress stalled several weeks ago after the fund reached the 62% retracement of the November-to-January selloff. It's been moving sideways since then in a developing triangle pattern, with resistance over $64.20. A rally through that price level would offer a good entry signal for a run up to the 2007 high at $69.14.

iShares MSCI Canada Index (EWC)
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Source: eSignal
The iShares MSCI Canada Index ( EWC) ETF rallied to an all-time high at $36.68 in November and dropped 10 points before printing a major low in January. It jumped back into the low-$30s in the next month and then dropped into a basing pattern until April 16. The fund broke out above base resistance on that date and rallied up to $33.61.

Price has been pulling back for the last week or so, filling the breakout gap and testing new support levels. These levels should hold and give way to a continued recovery. Accumulation is relatively weak, so I doubt this fund will surge quickly back to the 2007 high. Instead, look for a slow and steady uptick that lasts into the third quarter.

Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

Farley is also the author of The Daily Swing Trade, a premium product that outlines his charts and analysis. Farley has also been featured in Barron's, SmartMoney, Tech Week, Active Trader, MoneyCentral, Technical Investor, Bridge Trader and Online Investor. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

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