Waiting on Europe, Watching the Euro
Never mind the entreaties of the forex world. If you are an equity trader (stocks, options, ETFs), then all you need to keep track of the likelihood of a positive resolution in Europe may be the Rydex CurrencyShares Euro Trust ETF (FXE).
All month, sellers have been in control of FXE, so much so that the fund has not once closed overbought during the ETF’s otherwise bumpy decline of well over 4% in the last four weeks. This is in contrast to the fund’s behavior in September, as it dropped further into bear market territory, and in October, as FXE rallied from its lowest levels of 2011. During both of those swings, to the downside and upside, occasional overbought finishes in FXE were met by aggressive selling.
Shares of FXE had closed lower for four days in a row heading into Friday’s session, and were up marginally on the final trading day of the week. FXE is in neutral territory, having opened on Friday sharply higher only to finish near the lows of the day.
European ETFs remain under selling pressure as well, despite strong starts Friday morning. As was the case with the Rydex CurrencyShares Euro Trust ETF above, European ETFs like the iShares MSCI Germany Index Fund ETF (EWG) and the iShares MSCI Italy Index Fund ETF (EWI) both finished lower for four days in a row ahead of Friay’s session, and traded modestly higher on Friday.
Between the two, EWG is significantly more oversold, though even more oversold conditions can be found in ETFs like the iShares MSCI Austria Index Fund ETF (EWO) and the iShares MSCI United Kingdom Index Fund ETF (EWU). Note that all of these European country funds are trading in bear market territory, the earliest, like EWU, falling below the 200-day moving average back in June.
Traders will be on the lookout over the weekend for signs of a resolution to the growing European debt crisis. Presently there is a sense that other institutions like the IMF could play a role in both fascilitating an arrangement as well as establishing conditionality on the terms. Any positive news will likely send short sellers scurrying to cover positions which could result in dramatic, short-term gains in those funds that are among the most oversold.
The ETFs in today’s report were drawn from the data and research available through The Machine. To find out more, click here.
David Penn is Editor in Chief of TradingMarkets.com