Wednesday’s ETF Chart To Watch: EWC Tests Support

by on April 17, 2013 | ETFs Mentioned:

Weaker-than-expected China GDP data over the weekend spurred panic selling that resulted in a massive Monday morning sell-off on Wall Street. Profit taking pressures were further bolstered by homebuilders sentiment data, which missed the marked after the figure came in at 42 versus last month’s reading of 44. Nonetheless, better-than-expected housing starts data on Tuesday helped to restore confidence and fuel a broad-based rebound on Wall Street [Download 101 ETF Lessons Every Financial Advisor Should Learn].

The iShares MSCI Canada Index Fund (EWC, B) will make its way onto our radar screen later this morning as the Bank of Canada interest rate decision is slated to take place. Canada ETFs could experience volatile swings as investors digest the latest rate change news along with economic outlook commentary; analysts are expecting for the Bank of Canada to hold rates steady at 1.00% this time around.

Chart Analysis

Consider EWC’s one-year daily performance chart below. This ETF enjoyed a strong run-up after bottoming out in late June of 2012 only to encounter stiff resistance right above the $29 level; EWC has tried, and failed, on several occasions to establish support above $29 a share (red line) since September of 2012 with the most recent one taking place in January through early February of this year. Since its most recent failed attempt, EWC has endured a choppy correction which has sunk it back below its 200-day moving average (yellow line)  [see How To Take Profits And Cut Losses When Trading ETFs].

Click to Enlarge

Speculative traders may wish to jump in long at current levels seeing as how EWC appears to be holding above $27 a share; this is noteworthy because EWC previously rebounded off this support level (blue line) back in mid-November of 2012. Those looking to take advantage of the recent sell-off should utilize a stop-loss order in case profit taking pressures return later in the week [see ETF Technical Trading FAQ].

Outlook

If the Bank of Canada issues pessimistic commentary following the rate decision, EWC could face stiff selling pressures; in terms of downside, the next support level for EWC comes in at around $26 a share. On the other hand, upbeat economic commentary can inspire a rebound; in terms of upside, this ETF could face resistance as it nears the $28 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.