Major U.S. equity benchmarks kicked off the week on a sour note as the government shutdown continues to take its toll on investors’ confidence. Profit taking pressures permeated Wall Street as politicians on Capitol Hill are giving investors few reasons to get off the sidelines; political gridlock remains a key concern as our nation inches closer and closer to the October 17th deadline at which point the federal government will have exhausted its borrowing authority [see The Biggest Technical Glitches On Wall Street].
Our chart to watch for the day is the Market Vectors Indonesia Index ETF (IDX, B+), which may gap in either direction at the opening bell as investors react to the overnight interest rate decision overseas. Analysts are expecting for Indonesia’s central bank to raise rates by 0.25% this time around, which would bring the benchmark rate to 7.5%.
Consider IDX’s one-year daily performance chart below. This ETF has been steadily sinking lower since the start of June when the central bank began tightening interest rates. Fundamentally, IDX has posted a series of sharply lower-lows over the last few months as rising rates have put a damper on the nation’s stock market for the sake of ensuring more stable, long-term economic growth. From a technical perspective, IDX may be nearing a bottom soon; notice how it managed to rebound off the $21 level, which is where above-average buying volumes came in 8/28-8/29/2013 [see also 5 Big ETFs That Still Aren't Back To Pre-Crisis Levels].
IDX offers attractive potential for upside from a technical perspective at current levels; however, we would not advise long-term conservative investors to jump in here given the downtrend at hand coupled with the potential for further interest rate hikes [see Major Index Returns by Year: A Visual Guide].
If the Bank of Indonesia raises rates again, IDX should continue lower towards support; in terms of downside, this ETF has support around $21-$22 a share. On the flip side, this ETF could rally if the rate hike is postponed or if policymakers offer an improving outlook commentary; in terms of upside, IDX has immediate resistance at $24 a share followed by the $28 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.