While the attention of the financial world shifts to Switzerland and the happenings in Davos, it appears as though the charts around Europe are suggesting that there could be other reasons to focus on this region. More specifically, bullish chart patterns with strong levels of nearby support are presenting active traders with lucrative risk/reward setups and suggest that prices could be poised to break higher over the weeks and months to come. In the paragraphs below, we'll take a deeper look at the charts and try to determine how traders will be positioning themselves to profit from the move.
iShares MSCI Germany ETF (EWG)
Germany tends to be the heartbeat of the economic environment in Europe, and based on the chart of the iShares MSCI Germany ETF (EWG), it looks as though the long-term uptrend could just be getting started. As you can see from the chart below, an ascending triangle has formed on the chart, and the recent breakout will likely be used by many as confirmation of a continued move higher.
For those who follow technical analysis, target prices will most likely be placed near $33.25, which is equal to the entry price plus the height of the pattern. From a risk-management perspective, stop-loss orders will most likely be placed below $28.25 in case of a sudden shift in fundamentals.
iShares MSCI Sweden ETF (EWD)
Active traders across the globe started to take note of financial markets in Sweden since the price of Swedish equities broke above a key level of resistance back in December. As you can see from the chart of the iShares MSCI Sweden ETF (EWD) below, the psychological $32 mark has prevented the price from heading higher on several occasions in the past. Now that the bulls have managed to send the price above that level, we'd expect prices to continue to trend higher over the weeks and months ahead.
Based on the height of the pattern, some traders will likely set their 2020 target near $39. Followers of technical analysis will also want to take note of the bullish crossover between the 50-day and 200-day moving averages, which is also used a common long-term buy signal, suggesting that prices could be gearing up to make an even more significant move higher.
iShares MSCI France ETF (EWQ)
The financial markets in France generally tend to lag much of Europe, but based on the chart of the iShares MSCI France ETF (EWQ), you'll notice that the price of the fund has risen above the breakout point of a familiar ascending triangle pattern. The close above $31 suggests that the price is now headed toward the short-term target of $34.50. Many active traders will most likely look to protect against a sudden shift in fundamentals by placing stop-loss orders below $32.07 or $30.35, depending on risk tolerance.
The Bottom Line
Defined levels of support and resistance lay out the placement of buy and stop orders for many active traders when it comes to European financial markets. What is even more interesting for those who follow technical analysis is that recent breakouts on the ETFs shown above suggest that traders are bullish on the region and that prices are likely headed higher for months to come.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.