The Hot List: 3 European Country Funds for Short Term Traders

Strength in European country funds has been suspect ever since these funds began trading in bear market territory this summer.

You can define bear market as a long term downtrend or, as we do, consistent trading below the 200-day moving average. But any way you look at it, selling has dominating buying in these exchange-traded funds for months as they lost more than 20% from July to the beginning of October.

And with regard to rising markets in bear market territory, whether you look at the iShares MSCI France Index Fund ETF (EWQ) or a regional Eurpean country fund like the Vanguard European ETF (VGK) or the iShares MSCI EMU Index Fund ETF (EZU), you can see the same story since late July: middle and end of month rallies in August, September and again in October were all met with the same aggressive selling.

Ahead of the final trading day of the week, both EZU and EWQ are up more than 4%, finishing higher for a second day in a row and entering overbought territory. Much the same is true for the VGK, which finished higher on Thursday by more than 3%.

As such, these ETFs have some of the biggest negative edges in our database of exchange-traded funds. And if history is any guide, these bear market bounces will again prove unsustainable in the short term, bringing out sellers to once again send the funds lower.

Of the three, only the Vanguard European ETF finished in technically overbought territory. But any additional buying on Friday will almost certainly lift the other two ETFs to levels from which they have tended to underperform, if not reverse and move lower. Looking at VGK, two overbought closes in late October brought out sellers in droves who sent the ETF lower by more than 8% over the following three trading days.

All three ETFs in today’s report were available from research and data available through The Machine. To learn more, click here.

David Penn is Editor in Chief of