Bursa Malaysia Changes Direction

Dictated by the simple fact that emerging markets are outperforming U.S. equities since January, we’re continuing our world tour with this research. We don’t dismiss that U.S. equities have been on quite a rally since their early February low. However, as impressive as that’s been, emerging markets have been even more so. Today, we’re taking a look at Malaysia using an ETF that mirrors the Bursa Malaysia (formerly Kuala Lampur) Stock Exchange. The ETF we’re using is EWM.

Here’s the weekly chart of EWM.

We quickly notice that Malaysian equities have been in a downtrend since mid-2014. The 42% depreciation was fast and fierce until Summer 2015, where price met demand at the 6.75 level. This level has historical significance dating back to 2010. Looks like buyers/sellers have a good memory. Since finding buyers near 6.75, Malaysian stocks have continued to attract more buyers, driving price into a new potential uptrend.

This recent breakout (annotated on chart) is significant and one we can use to our advantage. Nothing is guaranteed, but this setup has potential. Looking at the daily chart, we can see that EWM has been outperforming the S&P 500 (upper pane).

We can also see well-defined risk and potential reward. It is skewed in our favor. 8.40 is an important support level based on the principal of polarity (former supply becomes demand). Below 8.40 and we don’t need to own EWM. Above 8.40 and we like the reward potential. Malaysian stocks are worth owning until price tells us otherwise.