Stocks endured another trading session in red territory as bearish pressures remain the dominant force on Wall Street. Rising yields on eurozone government bonds sparked another round of selling as the situation overseas remains clouded with uncertainty and pessimism, with no clear-cut solution in sight. To top it off, Moody’s Investor Service downgraded Germany’s AAA credit rating from stable to negative; this downgrade welcomed the bears as investors digested the reality of a deteriorating outlook for even the most stable of the eurozone member nations [see also ETF Insider: Run For The Hills].
The spotlight remains fixated on Europe as investors look for lawmakers to take action and quell the fear of a complete financial collapse in the debt burdened currency bloc. As such, our ETF to watch for the day is the iShares MSCI United Kingdom Index Fund (EWU), which may experience volatile trading as investors react to the latest U.K. economic data slated to come out before Wall Street’s opening bell. Analysts are expecting for U.K. GDP to come in at -0.3% versus the previous reading of -0.2% on a year-over-year basis [see also Ex-Europe ETFdb Portfolio].Chart Analysis
EWU is currently stuck in no man’s land so to speak. From a bullish perspective, this ETF appears to be holding support above $15.75 a share and may be due for a bounce higher just as it did on June 28, 2012. From a bearish perspective, however, a troublesome double-top may be forming. Notice how EWU has failed to summit $16.75 a share; this ETF has backed away from this resistance level on June 20 and more recently again on July 19, 2012, leading us to believe that the next round of selling may sink shares below the $15.50 mark [see ETF Technical Trading FAQ].
From a longer-term perspective, this ETF has been one of the more resilient European funds, although intensifying worries overseas may soon taint its reputation [see also How To Lose Money Trading ETFs].Outlook
Better-than-expected U.K. economic growth should inspire hope for the otherwise gloomy region; in terms of upside, EWU may face selling pressures as it nears the $16.25-$16.75 levels. On the other hand, another round of pessimistic developments overseas could lead to EWU breaking below the $15.75 level; in terms of downside, the next major support level for this ETF comes in at around $15.25 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Follow me on Twitter @SBojinov
Disclosure: No positions at time of writing.