Big Vote, Seasonality Could Move This ETF Soon

March and April tend to be good months for the EWG fund, historically

by Andrea Kramer

Published on Mar 2, 2018 at 2:29 PM
Updated on Jun 24, 2020 at 10:16 AM

On Sunday, March 4, members of Germany's Social Democrats (SPD) will unveil the results of a vote on a "grand coalition" with Chancellor Angela Merkel's more conservative Christian Democrats (CDU).  Ahead of the reveal  -- and with European stocks in a tizzy on trade war fears -- the iShares MSCI Germany ETF (EWG) is pacing for its lowest close in nearly six months. However, if history is any indicator, the German exchange-traded fund (ETF) could be on the verge of a pop higher.

Since touching a 10-year high just below $36 in late January, the shares of EWG have surrendered roughly 11.5%, and yesterday ended south of their 200-day moving average for only the second time since late 2016. At last check, the fund was 0.3% lower on the day, trading at $31.72 -- an area that represents a 38.2% Fibonacci retracement of EWG's rally from its December 2016 lows to the aforementioned January peak.

ewg german etf chart

While the results of the SPD vote will likely impact EWG's trajectory, the fund has history on its side -- in the short term, at least. Since inception, the shares have averaged a March gain of 1.7%, followed by an April gain of 3.1% -- tied with December for its best month of the year -- according to Schaeffer's Quantitative Analyst Chris Prybal. From current levels, another 1.7% gain this month would put EWG around $32.26, and a 3.1% gain from there would put the fund at $33.26. That's not quite in new-high territory, but would put the ETF back in the black year-to-date.

Although absolute options volume is light, recent buyers have been picking up calls at a faster-than-usual clip recently. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), EWG's 10-day call/put volume ratio of 2.88 is in the 78th percentile of its annual range. However, considering short interest on the fund surged by more than 700% in the most recent reporting period, some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to short sellers seeking an options hedge.

And while shorts have been flocking to the German ETF, fund flows have been diminishing. Year-to-date, EWG has seen net outflows of nearly $143 million, per ETF.com. During the same period last year, the ETF saw close to $66 million in inflows. However, that trend isn't limited to EWG, seeing as the S&P 500 ETF Trust (SPY) has also seen outflows in 2018, compared to inflows during the same period last year. In fact, February marked the first monthly ETF outflows across the board since January 2015.


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