Tuesday’s ETF Chart To Watch: MSCI Japan Index Fund (EWJ)

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Wall Street kicked off the week on a sour note as investors were quick to change gears into profit-taking mode following last week’s broad-based rally. With the ECB pushing forth its bond-buying program, the pressure is now on the Fed to act; given last Friday’s worse-than-expected U.S. employment report, investors are now more hopeful than ever that Chairman Bernanke will announce some sort of stimulus measures in this week’s FOMC press conference [see also Peter Schiff: The Only Way To Fix The Economy Is To Let It Fail].

With no major releases on the homefront today, our spotlight shifts onto the iShares MSCI Japan Index Fund (EWJ, B+). This

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ETF may see an increase in trading activity at the opening bell following the overnight reaction to the latest Machine Tools Orders data; analysts are expecting Japan’s machine tool orders figure to come in unchanged at -6.7%, marking another contraction in the nation’s manufacturing sector [see also Ex-Japan ETFs In Focus].

Chart Analysis

EWJ has been oscillating between the $8.6 and $9.4 levels since slipping below its 200-day moving average (yellow line) at the start of May 2012. Since then, shares have bounced off a slowly rising support line (bottom blue line), although they have failed to summit resistance around $9.4 a share (upper blue line); notice how EWJ attempted, and failed, to hurdle over its 200-day moving average on July 3 and later again on August 21, 2012. This ETF is currently in an attractive spot trading near the bottom-half of its range, which offers attractive upside to shorter-term traders as well as the opportunity to more carefully manage downside risk [see also 5 Tips ETF Traders Must Know].

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Although its support level has been steadily rising, conservative investors should hold off from jumping in long until EWJ has established definitive support above its 200-day moving average [see also 25 Things Every Financial Advisor Should Know About ETFs].

Outlook

Worse-than-expected machine orders data could create headwinds for Japanese equity markets; in terms of downside, EWJ  has immediate support at $9 a share followed by the $8.8 level. On the other hand, encouraging manufacturing data could help breathe some confidence into EWJ; in terms of upside, this ETF could face resistance at $9.2 a share followed by the $9.4 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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