Overextended Countries

I hope everyone had an enjoyable 4th of July. My wife (Abby) and I took our dog (Brooke) for her first swim, which was quite entertaining.

Yesterday I was reviewing some charts of various countries and found three that appear in need of a rest…. Mexico, Egypt, and Indonesia. Each chart shows very similar stories, a negative divergence in On Balance Volume and an overextended momentum.

First up is Egypt. EGPT, the Market Vectors ETF for Egypt had a large gap up from its low back around $10.50 which has taken Mexico back to a level last seen in May. However, volume has not appeared to participate in this advance which is a red flag and we are pretty lofty when looking at the top panel that shows a momentum indicator.

Next we have Indonesia (IDX). The overbought levels here aren’t has pronounced as in the other two countries we are looking at today, but it’s important to notice the resistance of the 200-day MA that knocked the price back from breaking past $28.33. Like Egypt, volume has not participated in this rally based on the On Balance Volume indicator and momentum is starting to peak past a historically overbought level.

Finally we have Mexico. It appears momentum has slightly corrected itself today with EWW down almost a percent. I’ll be watching to see if it fills the gap that was created between $59 and $61.

When looking back at our own markets here in the U.S., a lot of people have been referencing the overbought levels being shown in the McClellan Osc. It’s important to remember that this can be worked out over time not just price. So we could see the market consolidate for a few days, which could work off this level of being overbought before continuing higher, we don’t always need to see a decline in price in order to get out of being a little frothy.