Equity markets staged a volatile reaction yesterday following the latest FOMC meeting and commentary from Chairman Bernanke. The Fed made no offer of further stimulus while at the same time citing deteriorating economic growth expectations, which almost immediately lead to an equity market sell-off as well as profit-taking in gold futures. On the home front, ISM data came in barely above last month’s reading while construction spending dropped to 0.4% from 1.6% previously [see also Commodity Plays For the End of Fiat Currency].
Investors will turn their attention overseas later today as the European Central Bank announces interest rates and, more importantly, presents a stimulus plan of some sort for the troubled region. As such, the Vanguard European ETF (VGK, A+) could experience volatile trading following the rate decision and economic commentary from the ECB [see also Euro Free Europe ETFdb Portfolio].
VGK has been stuck in a dismal trading range underneath its 200-day moving average (yellow line) for the past two months. Notice how this ETF has oscillated between the $40 and $43 levels, bouncing off support in early June, then later again towards the end of the month, and most recently on July 24/, 012. What’s worrisome is that VGK has failed to summit its 200-day moving average on several occasions while its support level has remained flat; notice how selling pressures got the best of VGK on June 20, July 3, July 19, 2012, and most recently it has stalled right at the $43 level for four consecutive days [see also Five Important ETF Lessons Picture Edition].
From a technical perspective, VGK appears poised to turn lower later today just as it has done so in the past. However, if the ECB announces a stimulus plan that is favored by investors, this ETF may receive the much-needed fundamental boost to settle above its 200-day moving average [see also 5 Tips ETF Traders Must Know].
The price action for this ETF hinges on commentary issued by the ECB later today. If significant stimulus measures are announced, European markets could soar into green territory; in terms of upside, VGK could face resistance around $44 a share. On the other hand, pessimistic and uninspiring commentary from the ECB may tip this ETF lower; in terms of downside, VGK has minor support around $42 a share followed by the $40 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.