European markets have been rallying nicely over the last few months with a number of countries seeing sharp rallies off their October lows. Unfortunately the rallies have put a number of Exchange Traded Funds (ETFs) in overbought territory on both their weekly and daily charts.
Three ETFs saw their daily stochastic indicators make bearish crossovers on December 31—the iShares MSCI Germany ETF (EWG), the iShares MSCI United Kingdom ETF (EWU), and the SPDR Euro Stoxx 50 ETF (FEX). Those same three ETFs all have “sell” ratings on the Tickeron Scorecard currently as well.
The EWU saw a recent surge when it was announced that there was a Brexit deal in place for England to leave the European Union. The unknown status had been hanging over the head of the British market for quite a while, so the idea that a last minute deal was reached was a relief for investors. Unfortunately it could mark a high point over the short term.
Looking at the FA screener, the EWU and the EWG both have one negative indicator and zero positive ones. The FEZ has one positive indicator and zero negative ones. Because these are ETFs, there are only a few fundamental indicators available. For the EWU the lone bearish signal is from its Outlook Rating and for the EWG it’s the Seasonality Score that is negative. The FEZ gets a positive reading from its Outlook Rating.
On the technical side, all the same indicators are available that we see with individual stocks. The EWG has three bullish signals on the technical side and two bearish signals. The FEZ and the EWU both have four bearish signals and two bullish signals from the technical indicators. There are two areas where all three receive bearish signals—the MACD indicator and the Bollinger Bands. Both the FEZ and the EWU receive bearish signals from their RSI indicators and the Momentum Indicators. All three funds were in overbought territory based on the daily stochastic indicators, but the EWU exited overbought territory on January 4.
Another item of concern for these three ETFs is their current sentiment, specifically the short interest ratios. All three have very low ratios at this time. In fact, the FEZ’s ratio is at 0.60 and that is the highest of the three. What this suggests is that investors are pretty bullish at this time and that could be a concern if we see bulls exiting their positions.
The comparison feature for Tickeron shows how these three ETFs stack up against one another and how they compare to other funds.