With all of the media coverage on the U.S. double-dip recession, the Dubai debt crisis and the P.I.I.G.S this year, I bet many investors have failed to notice the success of one of the emerging BRIC countries — India. Despite the mediocre performance of the other BRIC countries in recent months, India has remained strong over the past two years and just hit 31-month highs.

Let’s take a closer look at this surprising trend and determine if you should be chasing or fading this emerging powerhouse. I like to look at India based on three different time frames using three different technical-based systems. This is the strategy that I use in the ETFTRADR portfolios each day. I call it a 3X3 strategy where I constantly monitor three time frames and three time-frame-unique systems, which provides diversity on indicators and periods.

To gauge the temperature of India, we’ll use the WisdomTree India Earnings Fund (NYSE: EPI) since it is more liquid than other India ETFs like the iPath MSCI India Index ETN (NYSE: INP) and the India Fund, Inc. (NYSE: IFN). In the past two years, EPI has gained more than 20%, outpacing the iShares MSCI BRIC Index (NYSE: BKF) and the S&P 500 significantly.

Let’s start with the bird’s-eye view and weekly charts. The INVESTR system, which uses William’s %R, moving averages and Parabolics, has been extremely effective in 2010. The trend-based system does show extreme strength, but is it too strong to chase now?

In my view, it’s not a good time to enter based on the weekly charts. Traders do not want to fight the current on EPI, but rather look for lower-risk entries. In the chart below, I’ve highlighted several different entry points based on this type of bull retest. I look at the $80 or $50 level retest to provide advantageous entry prices. The key is using the retest bar’s low as your stop.

OK, so the weekly chart looks a bit overextended, but strong, so now let’s shift down to the daily charts. I use a stochastics-based system for daily charts that provides more specific entry and exit points. Most recently we saw a stochastic-based buy signal at the open on Sept. 6. My first take-away is similar to the weekly chart — the daily looks very strong, but potentially too strong to chase. Again, I would look for a retest on stochastics (a dip below the bullish threshold at $60) and place a stop at the bar’s low. I’ve also highlighted recent instances where this occurred in the chart. After missing a breakout like this, it’s best to wait patiently for the pullback/retest.

Finally, let’s drill down to the hourly charts. This view really exposes the recent breakout strength in India. My hourly system looks for extreme strength by looking for trends that confirm outside both acceleration bands and Bollinger bands, which makes the signals fast and very accurate. Dependent on your level of trading activity, you could see a short signal on EPI hourly far before daily or weekly; however, it shows the true strength of the trend that EPI has not signaled a short since May on the hourly chart.

Ok, so should you fade or trade EPI after its multi-month run?

Similar to my views on agriculture commodities and gold trends, there is little reason to fade India (EPI). The longer-term trend has established itself as one of the strongest in the global economy, and historically leaders continue to lead while laggards continue to lag. That being said, there is a well-defined argument for EPI being overbought on the short-term, which means patience is the best trade now. At this point all time frames are suggesting that a better long entry will develop. Similarly, all three time frames show little evidence that fading this trend will lead to profits. 

If you are interested in learning more about strategies we use, I recommend joining Freemium TRADR, it’s the easiest way to become a rock star ETF TRADR.

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