Since the start of last year, the Vanguard FTSE Europe ETF (NYSEArca: VGK) has surged 23%.
Fueled by hopes of quantitative easing by the European Central Bank ahead of the ECB meeting June 5, VGK has joined other Europe ETFs in rally mode. The ETF, which tracks the FTSE Developed Europe Index, is up 2% in just the past week. [ETFs Show Traders Expect ECB Easing]
Even with those superlatives, some technical analysts see further upside ahead for VGK.
“VGK has formed a tight trading range just below the highs of the current base in May. The price action in the range has held above the rising 20-day EMA. For the most part, the current base held support of the rising 50-day MA minus a few shakeouts, which is bullish. The 20ema is now clearly above the 50ma, and the 200ma is still in a strong uptrend,” notes Deron Wagner of Morpheus Trading Group.
Improved sentiment towards European equities and VGK’s strong technical outlook are among the reasons investors have poured into VGK this year. With year-to-date inflows of $2.99 billion, VGK lags only three ETFs in terms of 2014 asset-gathering proficiency.
Since the start of the second quarter, VGK has raked in almost $941 million.
VGK’s recent false breakout “led to a six-day pullback, which undercut the 20-day EMA twice. The price action quickly returned back above the 20-day EMA, which is what we want to see after a shakeout,” according to Wagner.
VGK closed just below $61 on Tuesday, more than 31% below its all-time set in 2008, indicating the ETF could have plenty of room ahead of it with which to notch further upside. Even a move above $65 would be significant considering VGK has not traded above that area in more than six years.
As for expecting a major rally out of VGK if the ECB does make an easing announcement, investors should be careful because the U.K. and France combine for 45.7% of VGK’s weight. Sweden and Denmark combine for another 7%, meaning four of VGK’s top-10 country weights, a quartet that combines for almost 53% of the ETF, are not Eurozone members. [ETFs Pricing in Good News From ECB]
Vanguard FTSE Europe ETF
ETF Trends editorial team contributed to this post.