Wednesday’s ETF Chart To Watch: MSCI Japan Index Fund (EWJ)

by on May 9, 2012 | Updated May 10, 2012 | ETFs Mentioned:

Stocks plunged lower on Tuesday as investors expressed their concerns over the ongoing parliamentary elections in the debt burdened currency bloc overseas. Uncertainty levels intensified after Greece failed to form a coalition government, leading to a wave of profit taking across equity markets all around the globe. Amidst the resurfacing debt drama, gold faced major headwinds; futures prices for the precious yellow metal broke below $1,600 an ounce, sinking over 2% on the day [see also Have Gold ETFs Lost Their Luster?]. 

Although headlines from the Euro zone are likely to sway sentiment for the rest of the week, the iShares MSCI Japan Index Fund (EWJ) will also come into focus as investors digest relevant economic data later today. EWJ could see an increase in trading volumes following the release of the latest Japanese Leading Index, which is comprised of 12 major economic indicators; analysts are expecting for the figure to come in at 96.9 versus the previous reading of 96.3 [see also Ex-Japan ETFs In Focus]. 

Chart Analysis

EWJ enjoyed a hot start to 2012, although recent headwinds have dragged down this ETF practically to where it started off the year. In fact, this ETF appears to be in free-fall since recently topping out around $10.20 a share; notice how EWJ has gone onto make a series of much lower-lows and lower-highs since hitting resistance at the $10.20 level on 2/28 and most recently on 4/2/2012. What’s even more concerning is the fact that EWJ has broken below its 200-day moving average (yellow line) and the next major support level comes in at $9.20 a share [see also Five ETFs For Doomsday Capitalism]. 

Click To Enlarge

If the political drama in Europe continues to intensify over the coming weeks, EWJ will likely accelerate downwards as more and more investors scramble to take profits. As such, we advise conservative long-term investors to hold off from establishing a long position in EWJ until this ETF has established support above its 200-day moving average for five or more consecutive trading sessions, depending on individual risk preferences [see also Five Simple ETF Trading Tips]. 

Outlook

Investors will look to the latest economic data release to gain insights into the health of the sluggish recovery taking place overseas. If Japan’s economic outlook improves, look for EWJ to turn higher, although keep in mind that the next resistance level comes in around $9.60 a share. In terms of downside, this ETF may very well retest support at the $9.20 level, or perhaps even lower, if the latest economic data release sparks profit taking across Japanese equities. 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.