Europe ETFs Fly After German Court Backs Rescue Fund

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European stocks rallied to their highest levels in months after the German Constitutional Court allowed Germany to support the eurozone's new 700-billion-euro bailout fund to help resolve the zone's debt crisis. The euro's strength against the dollar also boosted gains for investments there denominated in greenbacks.

Global X FTSE Greece 20 ETF ( GREK ), up 5.6%, outperformed all stock ETFs, rising to its highest price in nearly six months. It's climbed for eight straight days without taking a breath. It sports a very healthy 84 IBD Relative Strength Rating and a high Accumulation/Distribution Rating of A. That means its outpacing 84% of the market and institutions are heavily buying shares.

IShares MSCI Spain Index ( EWP ), up 1.6%, rose to a five-month high. It has a weak RS Rating of 45 but a healthy B+ Acc/Dis Rating.

IShares MSCI Italy Index ( EWI ), up 1.6%, also reached a five-month high. It has 67 RS and B+ Acc/Dis Ratings.

IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, rose 0.7% and touched a four-month high. It's 1% above a 53.02 buy point in a classic cup-with-handle chart pattern. It has a moderate 52 RS and C+ for Acc/Dis.

All of these ETFs broke above their key 200-day moving average last week, confirming a bullish trend change.

PowerShares DB U.S. Dollar Index Bullish ( UUP ) shed 0.09%, whileCurrencyShares Euro Trust (FXE) added 0.3%.

Market Strategists Reaction

Germany's Federal Constitutional Court -- the equivalent of the U.S. Supreme Court -- ruled that the country's 190-billion-euro contribution to the European Stability Mechanism, or ESM, can't be increased without legislative approval. The ESM was established to support indebted countries and replace existing temporary fund programs: the European Financial Stability Facility (EFSF) and the European Financial Stabilization Mechanism (EFSM).

"Without Germany, the eurozone's largest economy, this wouldn't be possible," said Mark Martiak, a wealth strategist at Premier/First Allied Securities in New York. "A more unified fiscal policy across Europe is what global markets were looking for."

German Chancellor Angela Merkel and other leaders of the 17-nation eurozone have no other choice but to save the indebted countries from "economic implosion" in order to preserve the euro, said John Alan James, a professor at Pace University's Lubin School of Business in New York and an expert in European government.

"If the euro goes, the Deutsche Mark comes back roaring in value and German exports within Europe and abroad will suffer," James said. "Is it a wise policy? No. But like others, I see no other alternative in the short run."

He believes the bailout fund will offer economic stability for two to three years, so long as the U.S. economy doesn't fall back into recession.

"We must all hope that the U.S. economy -- the global (growth) engine -- can revive within the two to three years that the ESM keeps the eurozone on oxygen," James added. "Either we get back to sound economic policies within the next few years or our global economy may sink to levels that would make the 1930s look like a picnic."

The Bearish View

The market bears, on the other hand, contend this development doesn't change Europe's plight and that the market already had expected the ruling in favor of the bailout.

"This and every other attempt to solve the European debt crisis involving conditions will fail since core countries like Germany will demand conditions and distressed countries will demand no conditions," said Jeffrey C. Sica, president and chief investment officer of Sica Wealth Management in Morristown, N.J. "I expect this rally to be extremely brief once investors realize that the debt level in distressed Europe far exceeds the 190 billion euros that Germany is willing to contribute and that the conditions which the ECB will demand are impossible for distressed Europe to meet."

Breakout Analysis

IBD recommends that investors follow the trend and trade what you see -- not what you or others think -- because the news is always the worst at the bottom and overall sentiment is at its worst. The backstop is cutting all losses at 8%.

"The thing to remember is the market is forward looking," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati. "The fact that we are breaking out to new multiyear highs here is saying the market doesn't view (the U.S.) fiscal cliff or the European issues as a major hindrance going forward.

"Sure they are fun to talk about," he added, "but bigger picture, there are other factors driving us higher."

Follow Trang Ho on Twitter @TrangHoETFs .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: EFA , EWI , EWP , GREK , UUP

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