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

by on June 22, 2012 | ETFs Mentioned:

Bearish pressures swept over the market on Thursday as investors expressed their concerns over the latest Spanish bank stress test results. Independent auditors estimate that Spain’s recapitalization needs could reach $78 billion if a worst-case scenario develops. Investors on the homefront also fretted over concerning economic data releases; the Philly Fed Index, existing home sales and weekly jobless claims all came in worse-than-expected [see also Beyond TIP: 5 Inflation-Protected ETFs Worth A Look].

With no major economic data releases for the United States today, investors will turn their attention to the north as Canada’s CPI is releases. As such, our ETF to watch for the day is the iShares MSCI Canada Index Fund (EWC) which may see an increase in trading volumes following the latest consumer price reading. Analysts are expecting Canada’s inflation to come in at 1.9%, marking a slight drop-off from last month’s 2.1% reading [see also War In Syria, Crisis In Europe: Short Russia ETFs].

Chart Analysis

EWC started off this week on a strong note as Fed stimulus hopes at home and no major headlines from Europe welcomed back the bulls. Profit-taking pressures quickly resurfaced, however, as the latest FOMC meeting failed to provide the necessary jolt to stocks many had hoped for. EWC traded lower alongside major equity indexes on Thursday, sinking back down to support near $25 a share. This ETF is currently in a “sweet spot,” so to speak, hovering just above its historical support level; establishing a long position at current prices offers lucrative upside potential, although investors should closely monitor this position because a trade below $25  a share could welcome rampant selling pressures [see ETF Technical Trading FAQ].

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We advise conservative investors to hold off from jumping in long until EWC establishes definitive support above $26 a share for five or more consecutive trading days, depending on individual risk tolerance [see 3 ETF Trading Tips You Are Missing].

Outlook

If the latest CPI release paints a pessimistic picture for Canada, EWC will likely head south and retest support at $25 a share. On the other hand, a positive reaction following the inflation report may very well pave the way higher for Canadian equities, and likewise EWC. In terms of upside, this ETF may face resistance as it nears the $27 level, which is where the 200-day moving average (yellow line) also comes into play. 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.