The weekend debate on all the major networks focused on the imminent government shutdown, which appears unlikely to be averted. I found the perspective of the US reporters stationed overseas to be the most interesting.
Their comments reflected the amazement in overseas countries that look to the US for guidance. Apparently the overseas population is shocked that any responsible government could behave in this manner. Even the most conservative German politicians scoff at the concept that nationalized health care is socialist. Of course, their nationalized plan had a surplus of over $5 billion last year.
But Germany is still not near the top of the list when it comes to most efficient health care countries according to Bloomberg. They spend 11.7% of their GDP on health care versus 17.2% with a 45.5 efficiency rating. Don't despair, as the US did beat out Serbia and Brazil with its 30.8 score and was number 46 on the list.
It seems as though global investors did not believe that a small number of elected officials would let things go this far, but based on the overnight action, reality has sunk in with Hong Kong's Hang Seng and Japan's Nikkei 225 both down over 1%.
There are similar losses in the Euro zone with the S&P futures showing double digit losses. A sharp decline will help dampen the too-high bullish sentiment and it may take two of my favored ETFs to their recommended buying zones.
It should also provide a pullback in some of the Euro country ETFs, as their economies continue to improve and they also have successful national health care plans in place.
Chart Analysis: The iShares MSCI Germany Index Fund (EWG) made a new all-time high at $28.30 in reaction to the FOMC announcement. It has a current yield of 1.70%.
- It has maintained a narrow range for the past two weeks, with October's monthly pivot now at $27.30 and further weekly support at $27.
- The rising 20-week EMA is at $26.34 with the early September low at $25.57.
- The weekly relative performance appears to have completed its bottom formation as the downtrend, line c, has been overcome.
- The RS line has turned up from its WMA.
- The OBV has risen above its recent peak and is well above its WMA.
- The OBV is still below the highs from early in 2013.
- The weekly starc+ band is now at $28.67
- The weekly chart shows the completion of a flag formation two weeks ago.
- This formation has upside targets at $32.60 to $34.80.
- The relative performance has turned up from its WMA and moved through resistance at line f.
- The weekly on-balance volume (OBV) looks even stronger, as it has overcome strong resistance at line g.
- The OBV is well above its rising WMA and support at line h.
- The daily OBV (not shown) also looks strong.
- For October the monthly pivot is at $30.82, with further support in the $29.80-$30 area.
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Spain comes in fifth on the most efficient health care countries' list and the iShares MSCI Spain Index (EWP) has overcome the long-term resistance that goes back to early in the year, line a. The ETF also yields 4.09%.
- The starc+ band is now at $35.67, while the upside targets from the chart formation are in the $37.50-$38 area.
- The relative performance shows a bullish zig-zag formation and is now in a clear uptrend.
- A move in the RS line above the resistance, at line c, will complete the weekly bottom formation.
- The weekly OBV broke its downtrend, line e, and confirmed the price action.
- The daily OBV (not shown) has broken out to new highs.
- There is initial support and the October pivot is at $33.49.
- The August high was at $33.09, with more important support now in the $31.65-$32 area.
Another alternative is the SPDR Euro STOXX 50 (FEZ), which tracks the largest Euro zone companies and has a current yield of 3.37%. The weekly chart shows that a major trading range, lines f and g, has been completed.
- The weekly starc+ band is at $39.82 and the width of the formation has upside targets in the $40.50-$42 area.
- A similar pattern on the relative performance as the downtrend, line h, was broken at the end of July.
- The RS line is now in a clear uptrend after testing its rising WMA.
- The OBV has been acting very strong, as it broke out to the upside in July.
- It surged to another new high last week and is well-above support at line i.
- Initial support is now $37.71 and the October pivot.
- Additional support is in the $36.20-$37.40 area.
What it Means: The S&P futures look ready to gap below last week's lows, which is not a positive technical sign. I do expect the US markets to recover from this crisis and the looming battle over the debt ceiling.
Still, a setback in the Euro zone should present a good buying opportunity if more important support is tested.
How to Profit: For the iShares MSCI Germany Index Fund (EWG), go 50% long at $27.17 and 50% long at $26.42, stop at $25.44 (risk of approx. 5.1%).
For the iShares MSCI Switzerland Index (EWL), go 50% long at $30.87 and 50% long at $30.33, stop at $29.14 (risk of approx. 4.8%).
For the iShares MSCI Spain Index (EWP), go 50% long at $33.27 and 50% long at $32.31, stop at $31.37 (risk of approx. 4.3%).
For the SPDR Euro STOXX 50 (FEZ), go 50% long at $37.79 and 50% long at $36.38, stop at $35.83 (risk of approx. 3.4%).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.