Positive price momentum suggests a substantial breakout for France

Key points:

• France triggered a bearish-to-bullish reversal in price momentum buy signal
• Similar price momentum alerts led to a short-term pullback before the uptrend resumed
• With seasonality about the turn positive, additional evidence supports the case for a breakout

Bullish price momentum sets the stage for a substantial breakout in France

A system that measures price momentum for individual securities by comparing a short-term moving average relative to a long-term moving average triggered a buy signal for France.  An alert occurs when the ratio between the 4- and 40-week average cycles from below 0.93 to above 1.4.  

In periods of positive price momentum, like now, the EWQ ETF produces an annualized return of 10%, significantly contrasting the mere 2.6% return during unfavorable periods.

What makes this signal intriguing is France's inability to make any progress since peaking in July 2007, a consolidation spanning 16 years. However, the current scenario suggests that a significant breakthrough might be imminent, marking the end of this prolonged stagnation.

For individuals well-versed in classical technical analysis, it's worth noting that the France ETF (EWQ) has formed an ascending triangle, a pattern often indicative of an upcoming bullish breakout.

Similar price momentum signals suggest a pause that refreshes a bullish trend

When a deviation from the trend signal occurs, the EWQ ETF tends to give back some of the previous gains over the subsequent month. However, the uptrend will likely resume, with the ETF showing an 80% win rate six months later. 

The optimal holding period is 34 weeks, resulting in a 90% win rate over that time horizon.

Absolute and Relative Trend Scores

France, along with nearly every other country, ranks poorly on a relative basis when compared to the S&P 500. It's crucial to recognize that these ETFs favor value-oriented stocks, making any relative trend score improvement contingent on a turn in the growth versus value trade, which predominantly reflects the U.S. Technology sector.

With that in mind, I view an allocation to France as a trade idea rather than a buy-and-hold investment.

Seasonality

March will see a shift in seasonality favoring the EWQ ETF, with April producing the best return of any month.

April also shows relative outperformance versus the S&P 500 ETF (SPY).

One of our new features for seasonality charts is the growth of a $1 calculation based on a user-defined start and end date. Purchasing the EWQ ETF at its March seasonal low and maintaining the investment until the peak in May could result in a three-and-a-halffold increase, turning $1 into $3.5. 

What the research tells us...

France triggered a deviation from the trend buy signal as the ETF hovers just below a resistance level formed during a 16-year consolidation. After similar alerts, the ETF (EWQ) tended to experience a temporary pullback before resuming its uptrend. Traders should use this potential opportunity to build a position ahead of what could be a significant breakout. Seasonality will also turn favorable, lending additional credence to an upside resolution. With weak relative trends compared to the S&P 500, I view any trade as a short-term rental rather than a buy-and-hold investment.