Stock markets kicked off yesterday on a bearish note as spiking oil prices led to concerns over the health of the domestic consumer. Further weighing down on investors’ confidence is the looming Fed meeting in September, while the economic data front was fairly light on the day; pending home sales in July decreased by 1.3%, marking a deterioration from last month’s reading, which saw a decline of 0.4%.
Our chart to watch for the day is the iShares MSCI Germany ETF (EWG, B+), which could experience volatile trading as investors react to the latest German employment data released hours before Wall Street’s opening bell. Analysts are expecting for Germany’s unemployment rate to remain unchanged at 6.8%, while a loss of 5,000 jobs is also expected, compared to last month’s loss of 7,000 [see The Complete Visual History Of SPY].
Consider EWG’s one-year daily performance chart below. This ETF has steadily climbed higher within a fairly well-defined trading channel (blue lines) since the last quarter of 2012; notice how EWG has proceeded to correct lower down to its rising support line after each instance of grinding along the upper resistance boundary for extended periods of time. What’s even more noteworthy is EWG’s tendency to bounce off its lower support boundary following a pullback; notice the rebounds from mid-November last year, late April of this year, and most recently in the beginning of July [see 7 Rules ETF Day Traders Must Know].
Although taking a short position may be attractive at current levels as EWG appears to be headed towards support, we advise conservative investors to instead wait for an opportunity to go long here given the longer-term bull trend at hand [see ETF Call And Put Options Explained].
If the latest German employment report strikes an optimistic tone overseas, EWG should have the wind at its back; in terms of upside, this ETF has very stiff resistance at $27 a share. On the other hand, worse-than-expected employment figures can inspire further profit taking in EWG; in terms of downside, this ETF has immediate support around $26 a share followed by the $24 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.