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

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The bulls came back on Monday with ferocity as last week’s steep pullback has left the market scattered with ripe opportunities,  although a stomach for risk is most certainly still required. Optimism reigned supreme on Wall Street as investors cheered on Obama’s confidence that the fiscal cliff would be averted. Positive data also added fuel to the rally as existing home sales came in at 4.79 million, marking another healthy increase from last month’s figure of 4.69 million [Download 101 ETF Lessons Every Financial Advisor Should Learn].

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With no major data releases on the homefront today, besides housing starts from October, investors will be turning their attention to the iShares MSCI Japan Index Fund (EWJ, B+), which may gap at the opening bell following the overnight reaction to the Bank of Japan rate decision. Analysts are largely expecting for the BOJ to keep rates unchanged at 0.10%, although the economic commentary issued after the decision itself may help to spark movement in shares of EWJ [see 5 ETF Strategies To Reign In Risk]. 

Chart Analysis

This ETF is currently stuck in “no man’s land,” so to speak, seeing as it is trading in between major support and resistance levels. Since bottoming out at $8.64 a share on June 1, 2012, EWJ has managed to carve out a fairly well-defined trading range for itself; notice how this ETF has on several occasions bounced off the $8.80 level (blue line). At the same time, this ETF has unsuccessfully attempted to settle above the $9.40 level (red line) on several occasions as well [see ETF Technical Trading FAQ].

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Although EWJ still has room to run before encountering possible selling pressures, the upside potential here is quite limited as it has previously encountered headwinds right around $9.30 a share, as seen on June 20 and more recently on October 18, 2012. As such, we advise conservative investors to hold off from jumping in long until EWJ establishes definitive support above $9.50 a share [see 3 ETF Trading Tips You Are Missing].

Outlook

If the latest economic commentary issued after the interest rate decision offers an upbeat outlook, Japanese markets may rally; in terms of upside, EWJ may face resistance anywhere between the $9.30 and $9.50 levels. On the flip side, concerning commentary may lead to profit-taking in EWJ; in terms of downside, this ETF has major support at $8.80 a share. 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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