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

by on April 20, 2012 | ETFs Mentioned:

Stocks struggled to recoup losses from the previous sessions on Thursday as worse-than-expected economic data releases overshadowed earnings season, including an upbeat report from Ebay. Investors fretted over the latest labor market data as 386,000 people filed for unemployment benefits over the past week, versus analyst estimates of 374,000. Data from the housing market was also sour; existing home sales in March came in at 4.48 million, falling short of the 4.63 million estimate, as well as last month’s reading of 4.60 million [see also Free Report: Seven Simple & Cheap ETF Model Portfolios]. 

With no major economic data releases on the home front today, investors will turn their attention to the north as Canada’s CPI comes out. As such, our ETF to watch for the day is the iShares MSCI Canada Index Fund (EWC) as it may see an increase in trading volumes following the latest inflation data. Analysts are expecting for Canadian CPI to come in at 2.1%, a modest decrease from the previous reading of 2.6% [see also Which Fundamentals Are Driving Gold ETFs?]. 

Chart Analysis

EWC has endured a sluggish recovery since bottoming out at $23.48 a share on 10/4/2011. This ETF only recently managed to break above its 200-day moving average (yellow line) back in the beginning of March. What’s more concerning is the fact that EWC has been fairly range-bound thus far in 2012, whereas many other equity ETFs, both foreign and domestic, are sitting on hefty gains. Since the start of 2012, EWC has oscillated between the $27 and $29 levels; notice how this ETF tried, and failed, on several ocassions to establish support above $29 a share, only to fall back down near $27 a share [see also Euro Drama Is Back: Trade The Range In FXE]. 

Click To Enlarge

Another piece of concerning evidence is that EWC has been drifting lower since its most recent peak at $29.43 a share on 2/29/2012; since then, this ETF has been making lower-highs and lower-lows, while also recently slipping below its 200-day moving average. Given the bearish evidence outlined above, we feel that further downside in EWC is a major possibility in the foreseeable future [see Easy-As-ABC ETFdb Portfolio]. 

Outlook

If the latest Canada CPI data paints an optimistic outlook, EWC may have the wind at its back. In terms of upside, the next level of major resistance for this ETF comes in at $29 a share. Despite the attractive upside potential, conservative investors should hold off from establishing a long position until EWC clearly establishes support above its 200-day moving average for one or two weeks, depending on individual risk preferences. On the other hand, if CPI data misses expectations, profit taking pressures could develop, potentially dragging down EWC back near the $27 level. 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.