The bears arrived on Wall Street with fury on Thursday as selling pressures hit virtually every corner of the market, sinking stocks, commodities and even bonds lower across the board. Investors locked in profits following hints from the Fed about scaling back on stimulus, while gridlock in the eurozone further leeched away confidence; the European Central Bank reported it probably wouldn’t take over as the region’s bank supervisor until the end of 2014, further delaying these already long-overdue banking regulations [see The Best Dividend ETF For Every Investment Objective].
Our ETF to watch for the day is the MSCI Canada Index Fund (EWC, B), which could swing in either direction at the opening bell as investors react to the latest consumer price index data out of Canada. Analysts are expecting for inflation to come in at 1.2%, which would mark a minimal up-tick from last month’s reading of 1.1%.
Consider EWC’s one-year daily performance chart below. This ETF has been stuck in a dismal downward-sloping trading channel (red lines) since the fourth quarter of last year, managing to post lower-highs and lower-lows along the way. Notice how EWC has exhibited a fairly predictable price pattern over the last few months; this ETF has proceeded to trade sharply lower after each failed attempt at conquering its upper resistance boundary, followed by a rebound off the lower support boundary. With EWC now nearing the lower half of its channel, we feel that a long position makes sense given the opportunity to closely manage downside risk while still favorably positioning yourself in anticipation of a rebound [see 7 Rules ETF Day Traders Must Know].
Despite the attractive upside potential, we advise conservative investors to wait on the sidelines until EWC establishes definite support before jumping in long, seeing as how this ETF is still in a downtrend given that it is trading below its 200-day moving average (yellow line) [see How To Swing Trade ETFs].
If the latest Canada CPI report suggests better-than-expected economic growth, bullish momentum should return to EWC; in terms of upside, this ETF should face stiff selling pressures as it nears resistance around the $28 level. On the flip side, selling pressures could continue to plague this ETF if market sentiment further deteriorates; in terms of downside, EWC has major support around $25 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Follow me on Twitter @SBojinov
[For more ETF analysis, make sure to sign up for our free ETF newsletter]
Disclosure: No positions at time of writing.