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A Technical Look at the Japanese ETF (EWJ)

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The Bank of Japan is set to increase its inflation targets of 2% (reports Reuters) for an economy which has been a victim of deflation for more than a decade. The methodology adopted will be a fresh round of easing in order to (hopefully) restore growth and consumption in the economy (read Currency Hedged ETFs: Top International Picks?).

With this backdrop, a look at the Japanese ETF, the iShares MSCI Japan ETF (EWJ) is prudent as the ETF is expected to have a few action packed trading session to close out the year, especially considering the recent election in the nation as well. 

As indicated by the chart, the ETF saw strong resistance at the $9.50 level when the ETF has tried to cross two times over the past six months, the first time in July, and then during mid September but to failed to do so. Also, as we can see from the chart, currently the ETF is trading near the resistance level and at the close of the last recorded trading session shown, the ETF closed a tad below its resistance at $9.48 (see Is NKY A Better Japan ETF?).

However, the odds are definitely for the ETFs and it finally seems that EWJ will be able to conquer its resistance level. The ETF has made a descending triangle pattern and has also witnessed a bullish breakout accompanied by very high volumes of late (circled portion).

The iShares MSCI Japan ETF has very strong support level near the $8.80 mark. This level also bears testimony to the fact that the ETF has bottomed out and is ready for an up move as it has formed a triple bottom (see more in the Zacks ETF Center).

Also, in the past few trading sessions the ETF has been witnessing a significant surge in volumes which is actually substantially more than the average. Over the same time period it can also be seen that the iShares MSCI Japan ETF has moved in a sideways direction irrespective of the high volumes suggesting a bull-bear tug of war which was going on in anticipation of the Central Bank’s monetary policy meeting, and the national election.

Speaking of trends it can also be seen that after a long time, the ETF is actually trading above its 50, 100 and 200 DMA. It also trades with a bullish bias as the ETF has only recently surpassed the 200 DMA line (green line) after the triangle breakout ― which points towards the bullish side (read Developed Asia Pacific ETF Investing 101).

To sum it up, investors seeking exposure in the Japanese ETF should probably wait for the next early morning trade and check if it can go beyond its immediate resistance. A resistance breakout with good volumes is probably an indication to take a long position in this ETF.

EWJ currently has a Zacks Rank of 3 or ‘Hold.’

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