Debt Still Plagues Global Market: The View From Key ETF Charts

Includes: EEM, EFA, EWI, EWP, GXC, IEV
by: Jim Farrish

While the U.S. markets continue to churn in place awaiting some leadership the global markets are struggling. The resolution (bailout) relative to Ireland’s sovereign debt in November sparked a rally off the lows. The result has been a move higher, recapturing nearly two-thirds of the loses incurred. However, we are now testing the move and may retest the low again.

Why the renewed struggle? Ireland voted to approve the bailout. If they had voted against the bailout they would have likely defaulted on their debt. What would the market reactions to that have been? But if they accept the bailout the global markets sell anyway? Sometimes logic doesn’t apply to what actions investors take.

Looking at a chart of iShares MSCI EAFE Index ETF (NYSEARCA:EFA) we can see the action in November on the downside and the bounce which followed. The attempted move back toward the high of $59.40 is now being tested by the reaction to the vote in Ireland. This activity is worthy of watching if you own the global investments. The ripple effect of Europe is still an issue.

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Adding to the challenges in Europe, the S&P downgraded the debt in Spain. While not a surprise, it did impact the markets. Spain (NYSEARCA:EWP) fell 2.6% on the day and remains in a downtrend off the October high. Italy (NYSEARCA:EWI) responded by dropping 2.2% as well. In fact all of Europe (NYSEARCA:IEV) dropped on average 1.5% on the downgrade. Is this a reaction which produces a buying opportunity? Time will tell, but for now I am not interested in buying into potential problems.

China (NYSEARCA:GXC) has reported solid economic data and growth, but the market has found it difficult to find buyers. The ETF is down more than 9% since hitting the high in November. Yesterday the fund peaked below support and broke the uptrend line from May. This raises the question about moving lower and it could move down another 3-5% near term. It is a country on my watch list, but not in my portfolio. Too many question marks relative to the government attempts to control growth and inflation currently.

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The emerging markets are in a similar situation as you can see below. The consolidation has held within a defined trading range as the sector awaits some direction and momentum. Another test of support near the $45 level on EEM is in motion. If we hold an opportunity could arise. Despite the volatility the uptrend off the May low is still in play and may provide support as well. This is another sector on my watch list relative to the global markets.

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The churning in the U.S. markets could be a result of the weakness in the global markets. Either way it is worth watching and developing a watch list with a defined strategy for capturing the moves as they play out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclosure Statement: Jim Farrish is the Founder and Editor of and as well as the CEO of Money Strategies, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.