Eurozone ETF Puts a Double Round Number to the Test

European equity funds have clocked 23 consecutive weeks of outflows, per BAML data

Aug 21, 2018 at 8:10 AM
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"Pressure on European equities was unrelenting: Europe had its 23rd straight week of outflows with $2.9 billion pulled from the region's equity funds."
-- Reuters, Aug. 17, 2018

With the crisis in Turkey prompting the latest round of "eurozone contagion" panic, it's been a bumpy ride for the iShares MSCI Eurozone ETF (EZU). Last Wednesday, Aug. 15, marked the final session of a six-day losing streak -- tying EZU's own June record for the longest string of consecutive down days over the past year.

The underperformance in EZU may have been pronounced last week, but it certainly wasn't a new development. The fund's rally attempts in mid-June and late July were curbed by emerging resistance at its formerly supportive 200-day and 320-day moving averages, respectively. And since a June 18 bear gap into negative year-to-date territory, EZU has been unable to claw its way back into the green for 2018.

These latest EZU stumblings have the exchange-traded fund at risk of surrendering its foothold above $40 -- a round number that previously served as key support during the second quarter of 2017. Last Wednesday, on Day 6 of the aforementioned losing streak, EZU hit a fresh 52-week low of $39.42 in intraday action, and went on to collect its first daily finish south of $40 since May 2017.

The very next session, however -- after its 14-day Relative Strength Index (RSI) had fallen to a deeply oversold 24.7, within range of its own multi-year lows -- EZU bounced back to close last Thursday squarely at $40 per share. And while the fund managed to maintain its grip north of $40 through Friday's close, there have now been three consecutive sessions where this level has been breached on an intraday basis.

Notably, the $40 region is something of a "double round number" for EZU, as this area is also home to a round 10% year-to-date decline (at $39.04). Also nearby is a 50% retracement of the fund's rally from its June 2016 Brexit-era low to its January 2018 high, at $38.42.

After nearly half a year's worth of steady outflows from European equity funds, it's fair to question how much downside could reasonably be left for regional stocks. From here, a short-term break by EZU below this cluster of key chart levels -- or, conversely, a hold above -- would go a long way toward answering this question.

ezu daily chart 0817

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, August 19.


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