The iShares MSCI Germany (EWG) gapped down yesterday morning, continuing its negative reaction to the fallout from the VW emissions deception revealed Monday.
The weakness has pressed EWG right to a test of its Oct 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.
Accompanying the current decline is a positive, RSI Momentum divergence (see RSI below), which is the first anecdotal sign that perhaps the Apr 2015 to Sept 2015 decline is nearing exhaustion.
That said, however, I can make the case that this week's breakdown is the initiation of a downside, unwinding process in the aftermath of a yearlong major topping and distribution pattern, which if accurate, argues for considerably lower EWG prices in the weeks ahead.
Let's also notice 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.
As of this moment, the question is whether or not the strength of the Oct 2011 support line (24.55) is greater than the down- side pressure being exerted by the yearlong top pattern and the negatively-sloped EMAs?
For the time being, I think I will watch from the sidelines.