There may have been no more unwelcome news than word that the Greek government would be putting its recently agreed-upon deal with European leaders to a national referendum. Markets worldwide sold off aggressively, not the least in the United States where the Dow finished lower by more than 290 points.
What’s interesting about the latest wrinkle in the debt crisis on the continent is that the biggest concern is the potential for “contagion”, that a lack of confidence – and capital – in Greece will affect other neighbors in similarly troubled debt situations such as Italy.
Traders can keep tabs on the Italian market through the iShares MSCI Italy Index Fund ETF (EWI). And like most European country funds, EWI moved sharply lower in Tuesday’s trading falling well over 6% to finish lower for a third day in a row.
That said, traders should be wary of chasing the ETF lower. Now trading at its lowest levels in weeks and deeply short-term oversold, the edges in EWI are actually moving back toward the positive. In fact, ahead of trading on Wednesday, the iShares MSCI Italy Index Fund ETF has some of the biggest positive edges of any exchange-traded fund in our database.
Other European country funds with sizable positive edges after Tuesday’s sell-off include the iShares MSCI Spain Index Fund ETF (EWP) and the iShares MSCI Germany Index Fund ETF (EWG).
Betting on Bonds?
While stocks and commodities plunge in the wake of the latest news from Southern Europe, bonds are back on the upswing. Up for a third day in a row was the iShares Barclays 20+ Year Treasury Bond Fund ETF (TLT), which added more than 3% on Tuesday. It’s worth remembering that before the latest bad news from Europe, stocks had already begun to move lower in the wake of significantly overbought market conditions and the implosion and bankruptcy of MF Global.
Strength in bonds should raise red flags for traders and active investors in the short term. The fund has a negative edge heading into Tuesday’s session, and is increasingly vulnerable to a near term move lower.
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