Bulkowski's EZA Trade

Written and copyright © 2010-2011 by Thomas N. Bulkowski. All rights reserved.

This article discusses a trade I made in EZA, an exchange traded fund that is non diversified and holds securities traded in the South African market as represented by the MSCI South Africa index, according to yahoo!finance.

Easy Trading EZA

In my September 14, posting (which I wrote and posted on the 13th, but also added the exchange traded fund to my watch list on September 11), I suggested that it was time to go international, that I had spotted straight-line runs in several exchange traded funds. I even disclosed that I had a buy order on EZA, an exchange traded fund covering South Africa. I closed out that trade. Here's the details.

I wrote in my blog, "EZA: South Africa Index. I have an order to buy when it breaks out upward from the ascending triangle (formed starting on 4/5/10. Ignore the May 6 spike)." I show a picture of the exchange traded fund in the chart below.

The ascending triangle only had two touches on the top but more on the bottom if you don't mind the internal trendline (those are trendlines that cut through price). After looking at the other countries that were also making good runs and doing my research on the exchange traded fund, I decided to buy and did so with a conditional order. I'd buy the day after price closed at or above 62.57.

I'm not sure where that number comes from. Usually I place the buy price a penny above the pattern's high but that was 62.76 on April 5. I may have clicked on the wrong price bar for the quote.

The stop loss order was set for 59.74, which places it below the prior minor low at A. That matches the volatility stop setting, for a potential loss of 3.8%, assuming an entry at the closing price.

I expected overhead resistance at 65, 68, 73 -- the site of old peaks on the weekly scale.

I scored the triangle and found it had a mildly bullish +1 score with an 80.53 price target. However, that number could be due to the height of the triangle including the May 6 downward spike. I discarded the spike in my analysis since it was a one-time event, but didn't check my computer's math to see if that height was bogus. The price was also at the top of the Bollinger bands, suggesting a retrace was coming, or so my trading notes claim. I also had a note that said upside could be limited, so this was a swing trade, not a position trade or buy-and-hold. However, I didn't include that determination in my trading plan.

Anyway, the stock closed above the buy price and my order filled at the open the next day at 63.78, over a dollar higher than I wanted. Price gapped up, as the chart shows.

Price threw back to the triangle top as the chart shows, but that was expected. I hoped it would resume the rise, and it did.

I monitored the exchange traded fund daily as it climbed. When enough of an upward trend appeared, I drew a trendline underneath price, which I show in green.

EZA Sell Time

When price gapped below the trendline, I became worried. That was an unexpected surprise, but all good things come to an end sometime.

Flipping to the weekly scale shows that the fund turned at the price level of the October 2007 peak. In other words, the security had formed a 2B top, which became my primary sell reason.

Back on the daily scale, I looked at the fund and discovered that it makes sharp drops after peaking. I held off selling because I was hoping that this would just be a pause in the upward price trend, but when news came that overseas markets were heading lower, I decided to sell.

I placed a limit order, day order, to sell at 68.49 but changed that to 67.75 since the market had other ideas (meaning it didn't look like it was going to climb that high). It filled at that price and I made 6% on the trade, well short of the average 35% that I've made on my winners (compared to losses averaging below 10%) this year.

-- Thomas Bulkowski

Written and copyright © 2010-2011 by Thomas N. Bulkowski. All rights reserved. Without ice cream, life and fame are meaningless.