Equity indexes tumbled into red territory on Tuesday following Moody’s most recent downgrade of Ireland. The ratings agency pushed Ireland’s credit rating to junk status, sending additional waves of panic selling throughout the market as investors prepare for other larger markets to be next in line for a downgrade. “To avoid a bigger correction, a big and surprising solution must come out [of] Europe,” said Lorenzo Di Mattia, manager of Sibilla Global Fund. On the home front, investors are keeping a close eye on corporate earnings, but even Alcoa’s impressive revenues were not able to lift stocks higher, as market volatility has been largely affected by headlines from overseas over the past two weeks. While equities were inching lower in the latter half of Tuesday’s trading, gold futures staged a mini-rally as the yellow metal rose into green territory, gaining $5 for the day and closing just a few points under $1,570 an ounce. Crude oil slipped lower alongside equities and lost almost $1 during Wall Street trading hours, ending the day just above $96.50 a barrel.
Given the Chinese GDP report which was expected to come in at 9.3% late Tuesday evening, our ETF to watch for today is Guggenheim’s China All-Cap ETF (YAO). This fund is an excellent proxy for the general Chinese equity market as it’s designed to measure the performance of mainland China companies with a market capitalization of at least $500 million [see YAO Holdings].
Consider the daily chart of YAO below and notice how the fund has been in a slow-and-steady uptrend for the past year or so [try our New Free ETF Screener]. The fund clearly has rising support levels, which for the most part, move in-tandem with YAO’s 200-day moving average (yellow line). Currently, however, YAO has slipped below it’s 200-day average, which is worrisome given that the fund has typically been able to hold support above it, as it did in September of 2010 and again in March of 2011 [see YAO Fundamentals].
YAO must fight to establish definitive support above $27 a share over the next few trading days, otherwise the fund will likely slip even lower. The next level of support comes in at around $26 a share, while it is possible that the fund may sink as low as $25 a share if the equity markets remain plagued with volatility [see YAO Technicals]. Longer-term investors may consider establishing a long position at current levels since the fund is trading near the bottom half of its upward channel. However, conservative investors ought to hold-off until global equity markets stabilize and YAO closes back above its 200-day moving average, which is currently just above the $28 level. In terms of upside, YAO can easily surge back above $28 a share and even extend gains towards the $30 mark over the next month [consider the Asia-Centric ETFdb Portfolio].
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.