Thursday, April 15, 2010

Trading India ETFs

Trading India is not something every investor thinks about but is an option investors should really consider. Now with so many ETFs available to us, trading India is easier than ever before.

Above is a daily chart of EPI which is the most liquid India ETF currently available to us. In red is the S&P500 index and in the lower panel is India vs. S&P500. The first thing that stands out when looking at the above chart is that the two markets are highly correlated which means they pretty much move in the same direction. The only thing that varies between the two markets is the magnitude of each swing.

In the lower panel is a ratio line of EPI vs. S&P and as you can see ESI outperformed the S&P in 2009. A rising ratio line means ESI is stronger than the S&P while a falling ratio line would indicate weakness for India relative to our market.

Trading India ETFs is another option for investors to consider when speculating where they feel the overall stock market is headed. Right now all of the world markets appear to be somewhat overbought and you'll also notice that the ratio line has flattened out which is a sign for caution at this particular moment.

One thing to look for when trading India ETFs is volume. As I said earlier EPI is the most liquid. Some other choices are PIN, INP, IFN, IIF, and the newest arrival being INDY. Most of these ETFs have an average daily volume of less than 500k so your best choice would be EPI.

When trading India ETFs you'll notice that the chart patterns can vary from one ETF to another due to the different components that make up each ETF. This is why I follow all 5 ETFs because sometimes I will notice that one of these ETFs may have a better looking chart pattern which may justify (at least in my mind) taking a position in such an illiquid market.

Well there you have it. Trading India ETFs is just another vehicle that we have available which can help a watchful trader spot opportunities as they present themselves to us.

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