Investors kicked off the trading week on a bearish note as profit taking pressures swept in following the markets’ run-up to all-time-highs last week. The bulls got a whiff of better-than-expected data after ISM nonmanufacturing results came in above last month’s reading, however, hawkish comments from Dallas Fed official Fisher stole the headlines; Fisher reiterated that markets have become too accustomed to the Fed serving as a “lifeline” and that scaling back on bond repurchases should be expected [see Optionable ETFs For Every Investment Objective].
Our chart to watch for the day is the iShares MSCI Australia ETF (EWA, A-) which will look to resume its rebound following the latest Reserve Bank of Australia interest rate decision. Analysts are largely expecting for the RBA to cut rates to 2.50% from 2.75% currently, although the commentary after the decision itself may spark a different reaction among traders in the currency market.
Consider EWA’s one-year daily performance chart below. This ETF has staged an encouraging rebound over the past month following its steep correction since it peaked at $28.15 a share in late April of this year. EWA has snapped back higher in recent weeks as bargain shoppers have started to pile into this beat down foreign equity fund; despite the potential for a trend reversal here, it’s worth noting that EWA remains in a downtrend, and as such, we advise utilizing a tight stop-loss for those eager to jump in long [see 7 Rules ETF Day Traders Must Know].
In addition to the intermediate-term downtrend at hand, EWA is also rubbing right against its 50-day moving average (blue line), which it failed to summit last week [see also ETF Call And Put Options Explained].
If the latest commentary from the RBA following the rate decision strikes an optimistic tone with investors, EWA should have the wind at its back; in terms of upside, this ETF must settle above stiff resistance at the $24 level. On the flip side, a discouraging economic outlook will likely sink Australian stocks; in terms of downside, EWA has immediate support around $23 a share followed by the $22 level. 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.