3 Overbought European ETFs for Active Investors

As traders are getting over fears that Europe’s woes will cause a worldwide financial meltdown, shares of European ETFs like the iShares MSCI Germany Index Fund ETF (NYSE: EWG) have been on the march higher. EWG, for example, is up five out of the past six trading days, including two in a row ahead of trading on Thursday that have brought the fund to its highest level since lat October.

At these levels, and still trading below the 200-day moving average, EWG is short-term overbought. Moreover, the fund has earned “consider avoiding” ratings of 2 out of 10, meaning that EWG has rallied to a level where traders historically been more inclined to want to sell rather than buy.

And while this doesn’t not necessarily mean that the Germany ETF is ripe for selling short, it does strongly suggest that the ETF is likely to be available at lower prices in the near term.

Much the same can be said of other European funds that have become increasingly overbought in bear market territory such as the iShares MSCI Spain Index Fund ETF (NYSE: EWP) and the iShares MSCI Italy Index Fund ETF (NYSE: EWI).

Both EWP and EWI finished higher by more than 2% on Wednesday, and are short-term overbought below the 200-day. The selling has also created “consider avoiding” conditions for both funds, with the Italy ETF, for example, experiencing a two-point ratings downgrade. Note also that of the two funds, EWI has rallied to new, two-month highs while the Spain fund remains significantly below its December highs. This likely accounts in part for the relatively lower ratings – and larger negative edge – in EWI compared to EWP.

For traders and active investors who are interested in taking advantage of any near-term weakness in European equities – but would rather not sell funds short – one option is the ProShares UltraShort MSCI Europe ETF (NYSE: EPV). EPV is built to reproduce twice the daily returns of the MSCI Europe Index and, as of Wednesday’s close, has earned “consider buying” ratings of 8 out of 10.

Be sure to read our latest column from 7 Stocks You Need to Know: Trading a Double Shot of Peet’s Coffee and Tea.

David Penn is Editor in Chief of TradingMarkets.com.