India ETF Hits Resistance Point
Emerging market indices have had a rough go of it over the last year. India’s market has actually held up better than most other emerging markets since the beginning of the year. That being said, there is a technical pattern in the iShares MSCI India ETF (Amex: INDA) that suggests that India’s index might be turning lower again.
If we look at the daily chart we see that the fund dipped down to the $32.50 level in May and in June, but bounced each time. The fund then broke below the support level in late September/early October. It dropped all the way down to the $29 area before rallying over the last few weeks.
It is rather common for former support levels to become resistance points after a stock or ETF falls below them. How and why does this happen?
The thought process behind why this seems to happen goes something like this. An investor holds the investment as it falls from the August high down to the $32.50 level and thinks the support will hold once again. When it breaks below that support and goes all the way down to $29, they are kicking themselves for not selling when the support broke. Now they see the price back up at the $32.50 level and don’t want to miss the opportunity to sell at that level again and so they act.
We see this phenomenon quite often and it works the other way as well—former resistance levels become support levels after stocks or funds break above them and then dip back down to them.
