Tuesday’s ETF Chart To Watch: EWG Rally Hinges On German ZEW Survey

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Investors kicked off the trading week on a mixed note as profit taking pressures were challenged by upbeat U.S. retail sales data. After soaring to all-time highs last week, major U.S. equity benchmarks took a breather on Monday as many locked in profits despite encouraging economic data; April retail sales posted a 0.1% increase, marking a modest improvement over last month’s decline of 0.5% [see also The Cheapest ETF For Every Investment Objective].

Our ETF to watch for today is the iShares MSCI Germany Index Fund (EWG, A-), as it looks to hold its ground above a major resistance level following the release of the latest German ZEW Economic Sentiment Survey. Analysts are expecting for the sentiment figure to come in at 40, which would mark a modest improvemnet for the European powerhouse that saw last month’s ZEW reading come in at 36.3.

Chart Analysis

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Consider EWG’s one-year daily performance chart below. EWG was range-bound for most of 2013 until it recently managed to break above $26 a share; since then, this ETF has drifted sideways, but what’s encouraging is that it has kept afloat above this major resistance level that it previously failed to summit several times. What’s also noteworthy is the above-average buying volume seen on 5/10/2013, which adds weight to the bullish argument for EWG to continue higher given that larger institutional players are likely stepping into this fund [see also Euro Free Europe ETFdb Portfolio].

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Despite EWG’s impressive rally over the last few weeks, we advise conservative investors to consider waiting for a pullback before jumping in long; if profit-taking pressures swoop in, EWG can safely come down to $25.50 a share and still remain on a steep upward trajectory [see How To Use A Pairs Trading Strategy With ETFs].

Outlook

If the latest ZEW sentiment survey results come in above expectations, European markets will likely have the wind at their backs; in terms of upside, EWG has upcoming resistance around $27 a share. On the other hand, lackluster data from Germany can inspire a broad sell-off overseas; in terms of downside, EWG has immediate support at $26 a share followed by the $24 level. 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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