Thursday’s ETF Chart To Watch: European ETF (VGK)

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Selling pressures intensified on Wall Street as major equity indexes tallied another session in red territory after failing to stay above major support levels. The S&P 500 Index sank past support at the 1,375 level as profit-taking pressures persisted through the closing bell after U.S. retail sales data disappointed; the October sales figure contracted by 0.3% while analysts were expecting a 0.1% decrease. On the international front, Israeli airstrikes killed Hamas’ top military commander, sparking a wave of worry that translated into a rally for crude oil futures prices [Download 101 ETF Lessons Every Financial Advisor Should Learn].

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While weekly employment data will come into the spotlight at home, markets may also take cues from the latest eurozone GDP report. As such, the Vanguard European ETF (VGK, A+) is on our radar screen because it may see volatile trading activity at opening bell as investors digest the latest economic growth figures from the debt-burdened currency bloc. Analysts are expecting for the region’s quarterly GDP to come in at -0.6% versus the previously reading of -0.5% [see Euro Free Europe ETFdb Portfolio].

Chart Analysis

This ETF is currently trading in a “sweet spot,” as shares appear to be holding above the 200-day moving average (yellow line), thereby presenting an attractive entry point for bullish speculators. One piece of encouraging evidence is that the recent pullback has opened up the doors to prospective buyers waiting on the sidelines. That’s assuming that support above $44 a share holds, which could ignite a bounce higher in VGK over the coming days. On the other hand, this correction may not yet be complete; notice how since recently peaking at $48.90 a share on September 14, 2012, VGK has posted a series of lower-highs and lower-lows, perhaps suggesting that buyers are waiting for an even more attractive entry point [see 3 ETF Trading Tips You Are Missing].

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VGK

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Entering into a long position at current levels is attractive given the lucrative upside potential and the opportunity to closely manage downside risk as VGK flirts with a major support level. Nonetheless, we advise conservative investors to consider waiting until VGK has established definitive support above $46 a share before pulling the trigger [see also ETF Technical Trading FAQ].

Outlook

If eurozone GDP contracts more than expected, VGK could face serious headwinds on the day; in terms of downside, this ETF has support at $44 a share. On the other hand, a surprisingly optimistic GDP report may inspire a rally. In terms of upside, VGK may face selling pressures as it nears the $46-$48 levels. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing.

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