Trading By the Numbers: Greek PM, European ETFs Face Confidence Tests

The Friday morning headline at the Wall Street Journal was “Greece Blinked.” And while many in the financial world rejoiced, the possibility of a no-confidence vote against the Greek prime minister and a new coalition government forming over the weekend, helped many a trader and investor keep their optimism in check.

One interesting development is that many traders and active investors have begun looking beyond Greece already to the potential of contagion in neighboring southern European nations like Italy and Spain. Both Italy and Spain finished significantly lower on Friday. The iShares MSCI Italy Index Fund ETF (EWI) dropped well over 3% after a two-day rally that took the ETF to the edge of overbought territory below the 200-day.

Also lower ahead of trading on Monday was the iShares MSCI Spain Index Fund ETF (EWP). Down by more than 2% (actually closer to 3% than 2%), the EWP also found itself in the grip of sellers after bouncing toward overbought territory on Thursday.

The question for short term traders is whether or not markets like these are anticipating another round of short selling. Traders and active investors wondering about this prospect are no doubt remembering the steep sell-offs that occurred the last time these European funds rallied into overbought territory at the end of October. EWI fell by more than 12% in three days. EWP dropped by more than 10%.

It is impossible to say what will happen over the weekend, whether the people of Greece will get a new prime minister, a new government or none of the above – and how that will affect debt negotiations with other neighboring countries like Spain and Italy. But it is clear what confidence vote the market has taken on the European ETFs as a whole, and that vote – when conducted at the end of rallies to or toward overbought terrritory below the 200-day – is a very continental “non.”

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