With the presidential election in the rear-view mirror, equity markets took a nose dive lower as the reality of the looming fiscal cliff at home set in. All major benchmarks on Wall Street gave into heavy profit-taking pressures following Obama’s re-election, although citing the election results as a catalyst for yesterday’s sell-off is pure speculation. To top it off, resurfacing eurozone debt woes made their way into the headlines as powerhouse Germany is beginning to show signs that it’s growing tired of carrying the currency bloc’s burden [see 101 ETF Lessons Every Financial Advisor Should Learn].
With the European Central Bank rate decision on tap later today, our ETF to watch is the iShares MSCI EMU Index Fund (EZU, A) as it may experience volatile trading at the opening bell. Analysts are expecting for the benchmark rate to remain unchanged at 0.75%, however, economic commentary issued after the rate decision itself should offer valuable insights regarding the region’s financial well-being [see Euro-Free Europe ETFdb Portfolio].
Since breaking above its 200-day moving average (yellow line) in early September this year, EZU has carved out a fairly well-defined trading range for itself; notice how this ETF recently failed to summit the $32 level (red line) on two occasions, first on September 14 and later again on October 17, 2012. On a more encouraging note however, this ETF has also managed to hold support above $30 a share (blue line); notice how EZU has bounced back after each failed attempt at hurdling over resistance at $32 a share [see our ETF Technical Trading FAQ].
Seeing as EZU is trading near the bottom-half of its range, traders may be tempted to jump in long given the lucrative upside potential. We advise more conservative investors to wait for EZU to establish definitive support above $32 a share before pulling the trigger [see 5 Important ETF Lessons In Pictures].
Pessimistic commentary from the ECB can certainly spark a broad sell-off; in terms of downside, EZU has immediate support at $30 a share followed by the $28 level. On the other hand, a surprisingly upbeat outlook may lift European markets; in terms of upside, this ETF may face selling pressures anywhere between $31-$32 a share. 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.