EWQ Wrestles With Resistance, Pre-Election Fear

The spread on April VIX and VSTOXX futures is at its widest level since Brexit

by Alex Eppstein |

Published on Feb 13, 2017 at 12:27 PM

The iShares MSCI France ETF (EWQ) has come into focus ahead of the French presidential election. Marine Le Pen, representing the populist National Front party, has vowed to renegotiate the terms of France's European Union (EU) membership, if elected, leading to increasing "Frexit" speculation. According to polling firm Ipsos Mori, 80% of French citizens believe the nation needs a "strong leader willing to break the rules" -- which could work in Le Pen's favor.

Amid the geopolitical uncertainty, EWQ has been backing down from the $25-$25.50 area, which served as resistance in mid-2016, as well. Just above this zone is the 50% retracement of the exchange-traded fund's (ETF) 2014 peak to 2016 bottom, which could reinforce the overhead speed bump. Additionally, EWQ was last seen at $25.15, and approaching a 10% gain off its late-November bottom, which could be yet another hesitation point.

ishares msci france index etf ewq fibonacci retracement

Interestingly, the gap between volatility expectations in the U.S. and Europe has expanded to its widest level since the lead-up to the June 2016 Brexit vote. This is based on the spread between three-month futures on the CBOE Volatility Index (VIX), which are coming off a record short position, and Euro Stoxx 50 Volatility ETF (VSTOXX) -- the main fear gauges for the U.S. and Europe, respectively. According to BMO Capital, the "widened gap shows the market is pricing in significantly greater uncertainty in Europe than the U.S."

How should options traders play stocks in this climate? Earlier, Schaeffer's Senior V.P. of Research Todd Salamone recommended a short-term stock replacement strategy, in light of potential policy shakeups from the Trump administration and Fed. Specifically, Salamone noted that a possible volatility pop "is a risk worth keeping on your radar, especially if the market gets spooked by the Fed or by disappointing news out of the White House."

Don't miss Schaeffer's free weekly stock market forecast. Sign up now for Monday Morning Outlook.
JOIN FREE

Get Schaeffer's Opening View every morning before the bell rings.


MORE | MARKETstories


Dow Ekes Out a Win Thanks to Travelers
Concerns over the iPhone 8 and Apple Watch sparked Apple's worst day since August
Procter & Gamble Options Traders Eye Record Highs By Tomorrow's Close
Options buyers have targeted PG's October 97.50 call in recent months
Verizon, Philip Morris Stocks Head Opposite Directions After Earnings
Philip Morris stock is lower after an earnings miss
The Most Overbought Stocks and Sectors Right Now
Plus, the 20 most oversold stocks

Partnercenter


NEW! Explore Schaeffer’s Partners' deals and get connected to top online brokerages with deals tailored exclusively for our readers.  Get answers to your questions regarding transfer fees, commission rates, programs and available discounts related to online trading services.

TRADING SERVICES | FEATUREDproducts


By MG 2016
In March of 2016, I was introduced to Expiration Week Countdown.  The results are better than words!
Options trading made simple.
Schaeffer's Investment Research, Inc. is dedicated to providing subscribers advantages in options trading and investing.  Our independent market research services create profitable opportunities for investors at every level.