The bears took charge on Wall Street for another session as division in the Federal Reserve collided with lackluster housing data. Profit-taking pressures emerged after Philadelphia Fed Bank President Charles Plosser expressed his concerns over the recent QE3 announcement, emphasizing his doubts over the latest stimulus effort enacted by Bernanke. Case-Schiller home prices index data also missed the mark after the figure came in at 1.6%, falling short of the previous reading of 2.3%. Better-than-expected consumer confidence data went largely unnoticed; this figure came in at 70.3, topping analyst estimates of 65 [see also Jim Rogers, Peter Schiff Rip Bernanke and The Fed].
Investors will turn their attention overseas later today as German CPI data hits the street. As such, the iShares MSCI Germany Index Fund (EWG, A-) is on our radar screen because it may experience volatile trading following the upcoming inflation report. Analysts are expecting the German consumer price index to come in at 2%, marking a minimal decline from its previous reading of 2.1% [see also Euro Free Europe ETFdb Portfolio].
Chart Analysis
EWG has staged an impressive run-up since shares bottomed out around the $18.50 level in late July of this year. This move was arguably largely fueled by a growing bond repurchase program enacted by the ECB along with the announcement of European leaders agreeing to joint oversight of the regions banking sector. While fundamental developments overseas have been predominantly bullish over the past two months, technical headwinds may be brewing for this ETF in the weeks ahead. Notice how EWG is currently trading around historical resistance (red line) just below the $24 level [see also 3 ETF Trading Tips You Are Missing].
Click To Enlarge
Conservative investors looking to jump in long should exercise caution seeing as EWG previously tried, and failed, to summit $24 a share on March 19, 2012. Watch for this ETF to establish definitive support over the coming days; otherwise, selling pressures could swoop in and drag it towards its 200-day moving average (yellow line) just above $21 a share [see also ETF Technical Trading FAQ].
Outlook
A positive reaction to the latest CPI release can certainly bolster European markets higher; in terms of upside, EWG has major resistance at the $24 level. On the other hand, if inflation data paints a worrisome outlook for the German economy, headwinds may emerge for this ETF; in terms of downside, this ETF has viable support at $22 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.
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