EFA Weekly Options Trade Analysis (9-18-2011)
The investment seeks to replicate, net of expenses, the MSCI EAFE index. The fund generally invests at least 90% of its assets in the securities comprising the index. The index has been developed by MSCI as an equity benchmark for its international stock performance. It is a capitalization-weighted index that aims to capture 85% of the total market capitalization. The fund is non-diversified.
Trade Recommendations- trading weekly options with EFA, we are still bearish in nature but we would be cautious on longer term options that are bearish because of the change that the indicators are preaching that might be coming here soon. We should be changing direction of consolidating again, but this present move is really losing steam. Short term, we can see a short move up and then another drop down to its support trend line. So watch the bounce off the upper trend line and play the weekly option for a bearish gain.
Bollinger Bands- EFA has been bearishly moving down the bottom band—bouncing off and apparently using the middle band as its area of resistance. We have had a quick slide down the band and twice we have punched through the bottom. This is a possible sign of slowing down and not moving down so quickly. It could be the end or an apparent consolidating period. This is known as a double bottom buying period. So watch for a slow down in moving down.
RSI- here the EFA starts to show us something different. While the chart is moving down in such a strong bearish position, the RSI supports this move by never even touching the ‘50’nuetral mark. But we also have a series of higher lows given us a positive divergence. This divergence is usually a sign of a trend change. More proof of a turn around or slow down in the bearish direction of this ETF.
MACD-like the RSI, the EFA MACD is bearish, supporting the move, but at the same time giving us a positive divergence. The strongest divergence can be seen in the MAC Histogram. We have a push through positive territory whereas the other indicators are not showing us this.
Chart-from a long term neutral position, EFA has been steadily moving bearishly for the last 90 days. As we move down, we continue to trade in a tightening wedge. Eventually that wedge will have to break out and all indicators are leading to that breakout coming soon. While supporting the bearish tendencies of the stock, they are also giving us warning signs that EFA is slowing down and ready for a different change in the way it is moving.