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Is Germany's EWG a Buy in the Aftermath of the VW Scandal?


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.

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