Domestic equity indexes started off the week on a negative note as ongoing worries surrounding the European debt crisis paved the way for low-volume, profit taking across the board. Investors at home will soon deal with resurfacing debt drama in Washington as the November 23d deadline for Congress’ supercommittee approaches, which is faced with devising a $1.2 trillion deficit savings plan for the next decade [see ETF Insider: Expect More Volatility]. Gold inched higher by a few points amidst the uncertainty, with futures prices for the precious metal settling just above $1,780 an ounce for the day.
With all eyes on the European debt crisis, investors are sure to keep a close eye on the latest Euro zone GDP report when it comes out later today. Analysts are expecting for economic growth to come in at 1.4%, versus the previous reading of 1.6%, shifting the spotlight on the iShares MSCI EMU Index Fund (EZU) for today. This ETF tracks the performance of equity markets of European Union member nations who have adopted the euro as their currency [see Three Long/Short Ideas For Euro Zone Debt Drama]. EZU may see an increase in trading volumes as investors scramble to readjust positions after the latest Euro zone economic data is released.
Since topping out at $42.22 a share on 5/2/2011, this ETF has endured a serious correction, losing a whopping 30% (as of 11/14/2011) [see our Euro Free Europe ETFdb Portfolio]. Currently, this ETF appears to have bottomed out just above $26 a share, hitting a recent low at $25.57 a share on 9/23/2011, seeing as how it has considerable support at this price level. EZU made an attempt in late October to rally back above its 200-day moving average (yellow line), however, unfortunately it fell short by a few dollars.
EZU has been establishing rising levels of support, although it failed to keep its bullish momentum rolling when it slipped back below $30 a share and retested support at the $28 level two weeks ago [see EZU Scorecard & Ranking].
Establishing a long position in EZU at current levels is quite lucrative given the tremendous upside potential. Nonetheless, buying into EZU at this time is extremely speculative given all of the fundamental headwinds facing the debt burdened Euro zone. If the latest GDP report comes in better-than-expected, investor confidence in the Euro zone will likely improve, potentially sending EZU towards $32 a share, at which point we would advise short-term traders to lock-in profits. On the other hand, if the GDP report is disappointing, the mounting uncertainty may push EZU back below $28 a share, and even potentially retesting support at the $26 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.
Disclosure: No positions at time of writing.