We haven’t discussed Australia in a while so I thought it’d be a good time to check in on the stock exchange down under. Looking at a chart of Australia iShares ETF (EWA) we can see a clear uptrend that began in June of last year. The Relative Strength Index (RSI) has broken above 70 a few times over the last couple of months but has maintained it’s ‘bull market’ status by not falling under 50 during periods of momentum weakness. This is what a healthy advance looks like. Traders often jump at the chance to short a security based off an overbought momentum indicator alone. As you can see this would have gotten a lot of Aussie bears in trouble.
On the bottom panel I’ve put the On Balance Volume indicator. All this indicator does is simply add the volume when the security is up and subtracts the volume when share prices drop. We can use OBV as a confirmation that buyers are stepping in during the uptrend taking place in Australia.
Going forward there appears to be a slight divergence in the RSI as it is not making a new high alongside price. However this could easily be corrected as a function of time. Bulls will likely remain in control until we see a break in the OBV trend line and/or the RSI indicator dips below 50 and then finds resistance in the 65-area.
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