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Friday’s ETF Chart To Watch: MSCI Germany Index Fund (EWG)

December 30th, 2011

Stoyan Bojinov: Equity markets snapped back and recovered losses from yesterday as investors were in a cheerful buying mood following better-than-expected housing data on the home front. Wall Street started and ended the day in green territory with industrial stocks leading the way higher followed closely by financials, while utilities lagged behind as investors increased their risk appetite. Gold sank lower amidst the broad market rally, marking the third consecutive day of losses for the week [see Are Gold ETFs The Best Defense Against Euro Drama?]. Prices for the precious yellow metal dipped as low as $1,523 an ounce, although the price inched back up near the $1,550 level as the trading sessions drew to a close.

With no major economic data reports in the U.S., investors will turn their attention to overseas as the German consumer price index is released. Our ETF to watch for today is the iShares MSCI Germany Index Fund (NYSEARCA:EWG) as it may experience increased trading volumes following the reaction to the latest inflation data [see EWG Holdings]. Analysts are expecting for year-over-year CPI to come in at 2.2%, versus the previous reading of 2.4%.

Chart Analysis

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Since topping out at $29.05 a share on 5/2/2011, EWG has endured a brutal correction, although the fund appears to have bottomed out at $16.96 a share on 10/4/2011. Investors should note that this ETF has considerable support above the $17 mark seeing as how it has established a triple-bottom above this price level; EWG has held support above $17 a share on 9/12, 9/23, and 10/4/2011 [see EWG Charts].

Click to Enlarge

This ETF has been establishing rising levels of support since hitting its low-point in early October, although investors should still be cautious of jumping in at current levels for two reasons; first, EWG is speculative from a technical perspective because it is still below its 200-day moving average (yellow line). Second, and perhaps most importantly, the looming Euro zone debt crisis remains unresolved, making this a fairly risky buy at the moment from a fundamental perspective [see Three Long/Short Ideas For Euro Zone Debt Drama].

Outlook

If German CPI cools off more than expected, investors could give into selling pressures as pessimism prevails. In terms of downside, EWG may slump back down near $18 a share, while a break below that level would be worrisome, seeing as how the next level of major support lies at the $17 level. On the other hand, if investors have good reasons to end the year on a positive note, EWG could make a run higher, although short-term traders should note that there is considerable resistance at the $21 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

Written By Stoyan Bojinov From ETF Database Disclosure: No Positions

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NYSE:EWG


 

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