The iShares MSCI Germany (NYSE:EWG) gapped down Tuesday morning, continuing its negative reaction to the fallout from the VW emissions deception, which first broke on Friday and exploded when markets began trading on Monday.
The weakness has pressed EWG into a test of its October 2011 support line, now in the vicinity of 24.55, which must contain the onslaught to avert additional long liquidation that points next to the 23.20/00 target zone.
Nearly Done?
Accompanying the current decline is a positive RSI Momentum divergence (see RSI below), which is the first anecdotal sign that perhaps the April-to-September 2015 decline is nearing exhaustion.
That said, I can make the case that this week's breakdown is the initiation of a downside unwinding process in the aftermath of a year-long major topping and distribution pattern, which if accurate, argues for considerably lower EWG prices in the weeks ahead.
Let's also note that the 50-day EMA exhibits a sharply negative slope, with its angle of descent worsening below the 200-day EMA, which itself is rolling over into a negative slope.
Bottom Line
At this point, the question is whether or not the strength of the October 2011 support line (24.55) is greater than the down-side pressure exerted by the year-long top pattern and the negatively sloped EMAs?
For the time being, I think I'll watch from the sidelines.
