Trading By the Numbers: 3 Ways to Trade the BRIC Bounce
BRIC refers to the major emerging markets nations of Brazil, Russia, India and China. And heading into trading on Thursday, exchange-traded funds representing three of these global growth countries are among the ETFs that have made the most significant gains in recent days.
As such, many traders may be looking at ETFs like the iShares FTSE/Xinhua China 25 Index Fund ETF (FXI) and the WisdomTree India Earnings Fund ETF (EPI) as potential ways to climb on board the BRIC bandwagon. And they may be right. But in the short term, all of these BRIC ETFs are very vulnerable to a short term reversal and may be available at lower prices should that reversal occur.
FXI, for example, has finished higher for three out of the past four trading days – as have the Market Vectors Russia ETF (RSX) and EPI noted above. This strength has put all three exchange-traded funds back in overbought territory.
Previous advances into overbought territory have proved unsustainable for all of these funds. Rallying into overbought territory in late June, FXI fell for five out of the next six trading days. A similar move in mid-September send FXI tumbling by more than 10% over the following four trading days.
RSX has behaved similarly when traders have pushed the ETF into extreme levels to the upside. A four-day rally in the ETF in late August led to a three-day sell-off that brought RSX lower by more than 3%. Just a few days later, the WisdomTree India Earnings Fund ETF also climbed into overbought territory, only to be followed by a 4% drop over the next three trading days.
The ETFs in today’s report were drawn from the data and research available through The Machine. To find out more, click here.
David Penn is Editor in Chief of TradingMarkets.com