Although macroeconomic fundamentals have not entirely been
positive for Europe, many of its members have witnessed a
profound surge in equity prices over the past few months. After a
disastrous run in the first half of last fiscal year, this was a
terrific comeback by the European nations which for long had been
in the limelight for all the wrong reasons (see
More Trouble Ahead for Italy and Spain ETFs?
This was by no means a concrete reversal though, as the
European economies continue to be plagued with tons of debt in
their balance sheet and low growth economies. Nevertheless, the
brief uptrend in European equities, primarily induced by the
ECB's monetary measures, gave investors something to cheer about
for the first time in a while in Europe.
However, all that seems to be fading away with the recent
political turmoil in Spain and Italy. This has not only caused
massive sell-offs from the respective equity markets, but also
renewed the threats of a widespread global contagion from the
euro zone on the grounds of political uncertainty (read
The Key to International ETF Investing
For ETF investors, the price chart of the
iShares MSCI Italy ETF (
lays down some very important cues and thresholds to follow from
here onwards following the sell-off.
Sadly, for what was brewing up to be a fantastic chart pattern
for the Italian ETF, has turned out to be a rather dicey
one-primarily thanks to the massive cloud of political
uncertainty that has brewed up recently. The ETF started the year
on an extremely positive note with strong momentum, but politics
certainly threw a wrench into that (see
Three Surging ETFs with Strong Momentum
The ETF which was making higher highs and higher lows has very
recently broken down from its upward rising support line.
However, this should not be confused with a profit booking
phenomenon as the bearish breakout is confirmed by the volume
The breakout was characterized by massive increase in volumes
(encircled portion) which had caused the ETF to register a
massive slump breaking below the support line.
While it is true that the ETF seems to be poised for a further
downfall, there can be some strength for the ETF in the
subsequent few trading sessions. EWI has found refuge in its 50
Day Moving Average Line (blue) which has acted as a strong
support and prevented it from falling further (see
Is It Time to Buy China ETFs?
For investors who wish to initiate positions in EWI, this is
by far the most crucial level for the ETF as any fall below the
50 DMA support line will surely cause EWI to slump further. On
the contrary, if it can hold on to this level, EWI could well see
consolidation from here onwards.
Therefore a conservative wait and see game is recommended at
present. Also, for investors already holding positions in the
ETF, a breakdown below this level should be followed up by
EWI has a Zacks ETF Rank of 4 or 'sell' so we are not
expecting good things from the fund this year, beyond technical
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ENI SPA-ADR (E): Free Stock Analysis Report
ISHARS-ITALY (EWI): ETF Research Reports
TELECOM ITA-ADR (TI): Free Stock Analysis
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