Recent price action in the chart of EWZ marks an important inflection point: The dominant primary downtrend has possibly come to an end as prices appear to be on the verge of embarking on a new uptrend.
Of particular essence are a few observations that stand out:
• (A) A clean break below the ’13 lows suggesting continuation of the primary downtrend;
• (B) A relief rally taking failing cleanly at the downtrend resistance line, and initiating a new leg lower;
• (C) A false breakdown below $40 that was immediately followed by a quick reversal
• (D) Clear positive divergence preceding a major trend reversal: momentum (MACD) fails to confirm the breakdown in price action
Recent pullback towards the rising 20-week MA resembles a flag, confirming support and putting in place a higher intermediate low. From a trade potential perspective, the size of the channel suggests a minimum measured objective of $60 to the upside, which could eventually be surpassed for a potential retest of the 2011 highs ($72.50) over the next several months. On the downside, $45 appears to be a reasonable support level, and stops could be placed around this level.
Vipul Ramaiya, CMT
