While we have been waiting for U.S. indexes to decide their next move, the world markets have been deteriorating almost daily. While there has been considerable focus on the Greece
situation and now the euro, the stock indexes for many of these countries have also been under constant pressure. When markets are interrelated, global developments tend to branch out and impact all other markets.
Much like the demise of Lehman Brothers was the tip of the iceberg for the financial meltdown of 2008, many fear that other countries will eventually follow Greece's financial deterioration. Spain
has been front and center in these concerns. In looking at the iShares MSCI Spain Index ETF
), it is clear that investors are running as fast as they can from this market. EWP has shed almost 40% of its value since the beginning of 2010 and the selling has only intensified recently. While it's possible that selling is coming to a climax, U.S. traders who suffered through the financial meltdown understand that these moves can easily run farther than most expect.
While the United Kingdom
has not been in the same class as the P.I.G.S. (Portugal
), the iShares MSCI United Kingdom Index ETF
) reveals investors fleeing this market as well. EWU had been trading in a well-defined channel
for several months, bouncing between $15 and $17 per share. EWU easily cut through the lower boundaries of this channel a few weeks ago and has been struggling to get back over $15. There could be a million different reasons as to why the U.K.
would have trouble on the horizon and the charts are clearly confirming that something is wrong.
iShares MSCI Taiwan Index ETF
), which tracks Taiwan,
is showing a pattern that while stronger than its European counterparts, is still nonetheless weak. EWT has managed to respect the $11 level as support
on recent pullbacks, but has started to falter. Volume has picked up recently just as EWT dropped under its 200-day moving average
. It's interesting that Taiwan
is not directly linked to the troubles in Europe
and yet finds itself weakening as well. Whether the slide in EWT is forecasting a slowdown in the technology sector, or is perhaps due to recent weakness in the U.S.
, it really shouldn't matter to traders. EWT is following a pattern of global weakness and a failure to hold the $11 level would imply a top being put in for this index. (For more, see Does International Investing Really Offer Diversification?
Shifting continents and turning to South America, the BraziliShares MSCI Brazil Index ETF
) is painting a very similar picture to Taiwan
. While technically speaking EWZ remains in a broad range, it recently fell below its 200-day moving average on an increase in volume. The $60 level has held as support on the last few tests, so this would be the level to watch moving forward. A break under this level could lead to much lower prices.
While many of these ETFs are not at attractive areas for a trading opportunity, they are certainly worth monitoring. With the world markets more interrelated than ever, any sustained weakness overseas will also have a trickle-down effect in the U.S
. Whether it's weakness in technology foreshadowed by a drop in Taiwan
or another financial debacle in Europe
, it will likely have some ties to a market you trade. There is no telling whether the ETFs above will hold current support levels, but if they continue to break down it will likely foretell the U.S. markets following them lower. Whether you trade global ETFs or not, they are worth following to see what clues can be garnered about the markets you do trade. (For related reading, check out Intermarket Analysis: Pinpointing Reversals And Confirming Trends.
At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.