Major equity benchmarks kicked off the week with a whimper, even after S&P upgraded its outlook on the United States. Stocks largely inched higher after rating agency Standard & Poor’s bumped up its U.S. sovereign debt rating from negative to stable, helping to add fundamental fuel to the ongoing rally on Wall Street. Our ETF to watch for today is the MSCI Japan Index Fund (EWJ, B+), which could swing wildly in either direction at the opening bell as investors react to the overnight Bank of Japan interest rate decision. Analysts are expecting for the benchmark rate to remain unchanged; however, any commentary regarding future changes to monetary policy should offer valuable insights as to which way the Nikkei could swing next [see The Best Dividend ETF For Every Investment Objective].
Consider EWJ’s one-year daily performance chart below. Since breaking out past its 200-day moving average (yellow line) in December of last year EWJ went on to post stellar gains along a steeply rising trendline (blue line). As the chart reveals, EWJ has suffered from steep declines over the last two weeks as profit-taking pressures (not surprisingly) hit this ETF quite hard after peaking at $12.43 a share on 5/22/2013. The sheer magnitude of EWJ’s recent pullback is enough to scare away some longer-term investors for good; however, a closer look at the technical pattern at hand reveals an attractive bargain buying opportunity [see How To Swing Trade ETFs].
Click to Enlarge
Notice how EWJ has managed to hold its head above the $10.50 level (red line), which is significant seeing as how it previously rebounded off this same support level back at the start of April [see also How To Take Profits And Cut Losses When Trading ETFs].
If the latest economic outlook issued by the Bank of Japan strikes a pessimistic note with investors, the bears will likely return to EWJ; in terms of downside, this ETF has major support around $10.50 a share. On the other hand, upbeat commentary from policymakers could re-ignite bullish momentum overseas; in terms of upside, EWJ could face selling pressures as it nears resistance around the $11.50 level. 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
[For more ETF analysis, make sure to sign up for our free ETF newsletter]
Disclosure: No positions at time of writing.
- ETFdb Weekly Watchlist: XRT, EWJ, FXI Hinge On Consumer, BOJ, And Chinese Manufacturing Data
- Issuer Spotlight: iShares
- ETFdb Weekly Watchlist: VGK, EWJ and SPY Hinge on Eurozone Data, Policy Change and U.S. GDP Report
- Japan ETFs Battle For Inflows: EWJ vs. DXJ
- ETF Insider: Data Heavy Week Could Spur Volatility