Trading By the Numbers: European Funds Apres Le Breakout

The iShares MSCI Germany Index Fund ETF (EWG) finished higher by more than 4% on Friday. The iShares MSCI Italy Index Fund ETF (EWI)? Up more than 4%, as well. Buyers were also active in the market for Spanish and French stocks, with the iShares MSCI Spain Index Fund ETF (EWP) and the iShares MSCI France Index Fund ETF (EWQ) up more than 3% on the final trading day of the week.

With this price action, traders could be forgiven for thinking that all of Europe’s woes had become a thing of the past. But while there was much movement in nations like Greece, where a new prime minister was sworn in with much ceremony, and Italy, where the country is similarly headed for a new government, there still remain a number of obstacles to a true resolution of the European debt crisis. As such, and as these funds become more and more overbought in bear market territory, it is likely that many traders and investors watching these funds will take the opportunity to sell the renewed strength short.

This time may be different, but so far the rallies in these bear market European funds over the past few months have tended to be significantly short-lived. Rallies in mid- and late August, mid- and late September and again in October were all met with strong selling just as these funds moved into overbought territory. Even those traders and active investors who do not sell short can benefit from the knowledge that these funds are increasingly likely to experience renewed selling in the near term – and take a pass on the idea of trading on long side of these ETFs for the time being.


By the way, with all the talk about the debt-laden economies of Southern Europe, it is worth remembering that some of the biggest debt to GDP ratios can be found far further north in countries like Ireland. One of the nation’s hardest hit by the credit bubble and worldwide financial collapse in 2008, Ireland is actually tracked by a fairly illiquid exchange-traded fund, the iShares MSCI Ireland Capped Investable Market Index Fund ETF (EIRL). Shares of EIRL were up more than 1% on Friday, closing higher for a second day in a row and finishing just outside of overbought territory below the 200-day moving average.

The ETFs in today’s report were drawn from the data and research available through PowerRatings. To find out more, click here.

David Penn is Editor in Chief of