Friday’s ETF Chart To Watch: iShares MSCI Canada Index Fund (EWC)

by on August 19, 2011 | ETFs Mentioned:

Investors were reminded of last week’s chaos after stocks plunged on Thursday as worries about the global economy and European debt woes dominated media headlines. Leading economic indicators grew 0.5% in July, beating analyst estimates, although investors were disappointed after the Federal Bank of Philadelphia reported a sharp drop in factory activity in the region. “The data so far that we’re seeing does not indicate either we’re in a recession or headed into it. The market is concerned that all the turmoil is pushing us in that direction, but at the moment, we don’t see it,” said Bill Stone, chief investment strategist at PNC Asset Management Group. Gold investors capitalized on uncertainty yet again, with futures prices for the yellow metal hitting all-time-highs of $1,832 an ounce towards the end of the trading session.

Canada’s Consumer Price Index is slated to come out this morning before the opening bell on Wall Street. The iShares MSCI Canada Index Fund (EWC) will likely see an increase in trading activity as investors scramble to move in and out of positions, assuming the market is surprised by the actual rate of inflation. While a weaker than expected CPI is by no means bad news, it may be interpreted by some as sign that the economy is recovering far too slowly, potentially sparking another sell-off [see Three Country ETFs That Could Benefit From Triple-Digit Oil].

Chart Analysis

EWC is in an ugly spot right now as the fund clearly failed to climb back above $30 a share, and it remains under its 200-day moving average (yellow line). Another worrisome observation is the fact that EWC has consistently made lower-lows and lower-highs since peaking at $34.57 a share on 4/6/2011 [see EWC Charts].



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Another troubling piece of evidence is the sheer volume of shares that was traded during the recent sell-off, perhaps alluding to the possibility that some big investors have pulled out of this fund entirely in anticipation of further downside [consider Seven ETFs To Invest Like Peter Schiff].


Equity markets as a whole move in-tandem with one another, and it’s really becomes a question of which way will the winds blow next. A CPI report tomorrow that doesn’t cause investors to panic could perhaps help EWC climb higher back towards the $30 level, although if investor sentiment as a whole is negative, selling pressures will likely take over and equity markets as a whole will tumble before the weekend [see Do You Need A Canada ETF?]. In terms of upside, EWC is certainly in a very attractive spot right now from a long-term perspective given its tremendous profit potential, assuming that it can resume its previous uptrend [see EWC Fundamentals].

In terms of downside, failure to close above $28 a share will give weight to the hypothesis that EWC is due for another move lower, perhaps near $26 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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Disclosure: No positions at time of writing.