Global ETF Technical Update

International and Emerging ETFs such as iShares MSCI EAFE (NYSEArca: EFA), iShares FTSE China 25 (NYSEArca: FXI) and iShares MSCI Emerging Markets (NYSEArca: EEM) have heavily underperformed now for several months.  In fact, the broader trends unveil this underperformance for several years now.

There is one striking difference amongst these ETFs however, which is that EFA has held up relatively well for much of 2013.  This should be good news, right?  Well, the technical breakdown relative to the S&P 500 this week is a bit concerning, especially as EEM and FXI are bouncing.

Yes, it is too early to call these bounces sustainable, but it may allude to bottom process, while EFA may be in the early stages of some kind of topping formation. Again, it is a bit premature, but a possible head and shoulders top needs to be monitored.

A breakdown in EFA could be accompanied by global money managers reallocating into domestic markets, reinforcing the relative outperformance and artificially elevating these markets to unsustainable levels.

iShares MSCI EAFE ETF (EFA):  EFA is resting on trader support near 58.70 or the No. 2012 uptrend line and the 50-day moving average. A violation of this support opens the door for a test of what could prove to be a significant support near 56-57 as this corresponds to the Feb. 2013 low, the Oct. 2011 and Mar. 2012 highs, and the 30-week moving average.  To the upside, a move above the Mar. 2013 high (60) confirms some kind of high level accumulation pattern.  This helps to negate the 2009 head and shoulders top pattern and opens the door for a move toward the 2011 high (64.35).

iShares FTSE China 25 (FXI): From a longer-term perspective, the large symmetrical triangle pattern continues to suggests that strength and weakness will alternate between the top and bottom of this pattern.  This pattern looks as if it could resolve itself as early as 1H 2013.  The near-term picture remains bearish, as FXI trades within a well-established downtrend channel.  Traders are likely to gravitate to these levels as a technical guide.  A breakout helps to stabilize the selling pressure and allows for a move to initial resistance near 39.25-40.