2 international ETFs to watch

For the sixth consecutive day, turnover in both exchanges came in well below
average levels. Total volume in the NYSE declined by 5%, while volume in the
Nasdaq was 11% lighter than the previous day’s level. Internals were positive,
as advancing volume in the NYSE exceeded declining volume by just over 2 to 1.
The ratio in the Nasdaq was similarly positive by just under 2 to 1. Yesterday,
we mentioned it was positive that each of the past four “down” days were on
lighter volume, but now we also had a session of lighter volume gains as
well. Basically, it appears that most institutions are stepping aside ahead of
this week’s FOMC meeting. Beginning on Wednesday, the Federal Reserve Board will
meet to discuss interest rates. There is a lot of speculation going into this
meeting, so it seems that many traders and investors are taking a neutral stance
ahead of Thursday’s announcement on interest rates at 2:15 pm EDT.

In addition to the iShares Xinhua China 25 Index
(
FXI |
Quote |
Chart |
News |
PowerRating), which was discussed
in yesterday’s newsletter, several other international ETFs have also begun to
show relative strength to the U.S. markets. Many of those same ETFs were also
leading the U.S. markets higher when stocks were showing strength before the May
selloff began. One such example is the iShares Mexico Index
(
EWW |
Quote |
Chart |
News |
PowerRating). When the
domestic market began its downward spiral in mid-May, EWW followed suit.
However, it has recovered much better than the U.S. major indices over the past
week. Unlike the S&P 500 and Nasdaq Composite, both of which remain below their
seven-week downtrend lines, EWW actually broke out above its downtrend line on
June 21. The chart below illustrates this:

Despite having broken out above its downtrend line, EWW still has overhead
resistance of its 200-day moving average. As such, we feel it is a bit risky to
enter a new long position in EWW at current levels. Nevertheless, this ETF has
been acting well versus the U.S. markets and will probably be among one of the
top gaining international ETFs when/if the U.S. major indices eventually break
out above their downtrend lines.

As for industry sector ETFs that are nearing a breakout of their downtrend
lines, check out the U.S. Oil Fund
(
USO |
Quote |
Chart |
News |
PowerRating), which mirrors the price of crude
oil. Based on yesterday’s close, USO is within striking distance of its
eight-week downtrend line. If it breaks out, it may be good for a short-term
momentum trade up to resistance of its prior high from June 5:

Yesterday was another “inside day” in the broad market. This means that the
major indices such as the S&P 500 and the Nasdaq Composite traded completely
within their respective intraday ranges of the previous day. As such, there is
really nothing new to report regarding changes in overall sentiment or market
direction. As we illustrated in both the June 23 and June 26 issues of The
Wagner Daily, both the S&P 500 and Nasdaq Composite remain stuck in a narrow
range, right below resistance of their daily downtrend lines (see the
June 26 issue
to refresh your mind). We’ll skip showing you those charts again in order to
avoid being redundant, but suffice it to say that we continue to expect a very
big move within the next few days. Again, the longer the recent volatility
continues, the more powerful the eventual move will be. Remain alert and
prepared to act in either direction when stocks finally make their move. Most
likely, this won’t happen until after the Feds announce their decision on
interest rates this Thursday afternoon.

Long TTH and GLD, short IYT (regular subscribers to

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