In April I tweeted out a chart of the Australian ETF (iShares MSCI Australia Index (ARCA:EWA) as it hit previous resistance at 26.50. This had been a tough level to break over the last year and EWA was making a third attempt with momentum already in ‘overbought’ status. The attempted break ended up failing and EWA has traded sideways pretty much every sense.
Below is a weekly chart of the iShares Australia ETF and you can clearly see the level of resistance I was talking about earlier. In the top panel of the chart we have the Relative Strength Index (RSI). With each crack at breaking above 26.50 the RSI indicator has made a lower low, creating a negative divergence with price. On the downside we have the 100-week Moving Average which has been good support for bulls to latch on to after the failed breakouts have pushed price lower.
In the bottom panel of the chart I’ve put the relative performance of EWA and the S&P 500 (SPX). Like momentum, with each attempt to snap resistance we’ve seen Australian equities under-perform U.S. stocks by a greater degree. Investors do not appear to be turning in favor of Australia over the U.S. when it comes to their respective stock markets.
We now once again have the momentum indicator rolling over as EWA is off by over 1% this week and the relative performance showing preference towards domestic equities over those down under.
Taking a closer look with the daily chart below, we can see a similar setup as the weekly chart. After the April peak in momentum, the RSI has begun to negatively diverge as price tries to consolidate right around 26.75. With Wednesday’s decline in EWA and ultimate under-performance against the S&P 500, the Australian ETF is breaking its 50-day Moving Average, which had been support back in May.
Things don’t appear to be shaping up well for Aussie stocks. I’ll be watching to see if we get another test of the 100-week Moving Average in the coming weeks/months.
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