Over the past few months, broader European
have been surging higher despite several macroeconomic as well as
political headwinds. This is especially true for the
iShares MSCI Italy ETF (
which had been on an upward trajectory over the past few months
as indicated by the upward rising support line in the chart.
However, this brief uptrend was not sustainable as political
instability injected fear in the minds of the investors once
again. Italy recently witnessed elections following which the
Italian ETF EWI plunged about 5.8% on the day the election
results were announced (see
Italy ETF Plunges on Election Chaos
If this wasn't enough, there was chaos in the European stock
exchanges over the following trading session on renewed fears
about another leg in the European crisis.
EWI was one of the worst performing ETFs for February, which
has plunged almost 12.4% for the month (read
Best and Worst Performing ETFs of February
). However, looking at the short term chart of the ETF it finally
seems that the ETF has managed to find a bottom.
After a breakout below its upward rising trading channel, the
ETF has tanked massively which was triggered by above average
volumes. In fact, the volumes saw an up tick recently especially
compared to previous patterns.
The ETF has lost around 9% after breaking below the 50 DMA
line (blue) which previously was the support line for the ETF
Is the Italy ETF Doomed from a Technical
). And it is trading within striking distance of its 200 DMA line
This 200 DMA is a very strong support for the ETF. Previously
EWI had rebounded off the green line in mid November (encircled
portion) and had carried on a fresh surge upwards.
It has come back to that level now after the vicious sell off
that EWI has witnessed of late. And given the chart pattern of
the ETF, this most likely seems to be the bottom.
This is primarily because all the negativity surrounding the
ETF seems to have been priced in and discounted by the market at
its current level. Furthermore, the sell off has made valuations
more realistic (which were surging and disproportionate a couple
of months ago) and justified the present state of affairs of the
Also, the Williams R and the Relative Strength Index hint that
the ETF has for long been in the oversold territory and its sell
off might just have been a bit overdone. The RSI has a value of
33.84 and the Williams R shows a reading of -90.67 which
signifies a deeply oversold state (read
More Trouble Ahead for Italy and Spain ETFs?
It is also noteworthy that the ETF is on the verge of forming
a double bottom at the $12 mark which might be the platform it
needs for a fresh surge upwards. This is especially true given
the flush of liquidity induced by central bankers across the
globe which has welcomed risk taking among investors.
Also, compared to other developed markets, the equity prices
in Italy are currently at subdued levels, mainly thanks to the
recent fear-induced sell off. This may also be the trigger for a
However, further negative news could surely hit the ETF hard
and scrap any possibility of a fresh surge upwards. We are
maintaining our Zacks ETF Rank of 4 or 'Sell' on this troubled
fund, thanks to the weak long-term outlook and terrible
For this reason, the ETF may be an intriguing play for short
term traders, but for those seeking a longer term investment,
other European ETFs are probably a better choice, even at this
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ISHARS-ITALY (EWI): ETF Research Reports
ISHARS-SPAIN (EWP): ETF Research Reports
VIPERS-M EUROPN (VGK): ETF Research Reports
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