The bulls finally eased off the buying trigger as the latest FOMC minutes cast a cloud of worry across Wall Street. Major equity indexes ended yesterday’s trading session with a fairly sharp sell-off into the close, marking the first profit taking wave since the last mini-correction seen in mid-April. Stocks dropped after comments from Chairman Bernanke revealed that the Federal Reserve may be getting closer to slowing down its pace of bond-repurchases [see also The Cheapest ETF For Every Investment Objective].
Our ETF to watch for today is the MSCI United Kingdom Index Fund (EWU, A) which could swing in either direction at the opening bell as investors react to the overnight GBP gross domestic product data release. Analysts are expecting for Britain’s economic growth rate to come in unchanged at 0.3% for the quarter.
Consider EWU’s one-year daily performance chart below. This ETF has been trading higher within a crudely defined channel (blue lines) since bottoming out in June of last year; what’s noteworthy is that this ETF has a history of grinding along its upper resistance boundary for extended periods of time, while its rebounds off the lower support line have been far more predictable. For example, notice how this ETF traded along its upper resistance boundary in September and October of 2012, while it managed to snap back as soon as it neared its rising support line as seen on 11/16/2012 and more recently in mid-April [see How To Swing Trade ETFs].
Given the longer-term technical pattern at hand, we advise speculating traders to utilize tight stop-losses if they wish to enter a short trade at current levels seeing as how EWU has a history of bumping against support for extended periods of time before starting a correction [see ETF Technical Trading FAQ].
If the latest U.K. GDP revision comes in better-than-expected, EWU may be in for a very green day; in terms of upside, the next major resistance level for this ETF comes in at around $20 a share. On the other hand, disappointing economic growth could spur heavy profit taking pressures overseas; in terms of downside, EWU has immediate support at $19 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.