The iShares MSCI Italy Capped ETF (NYSEArca: EWI), which is already one of this year’s worst-performing developed markets single-country exchange traded funds, could be an ideal short-term trade for risk-tolerant, active traders as the charts indicate the largest Italy ETF could be primed to bounce higher.
Italy’s fragile banking sector, the largest sector allocation in EWI, is in focus as global market participants fret about Brexit’s impact on Italy’s banks. The Italian government has been under pressure to calm concerns over its ailing banking system, which underperformed in the European Central Bank’s 2014 financial stress test and is holding €360 billion, or $410.5 billion, in bad loans.
Italian officials recently revealed that JP Morgan Chase (NYSE: JPM) will manage a bailout program that will help Italy’s sprawling banking system manage one of the largest bad debt loan burdens in the developed world.
“After the market crash in 2008, price action for EWI played through a series of three-wave moves with the net result taking the fund sideways within a converging range. Since the initial rebound in early 2009, the pattern almost certainly has been corrective, and the specific formation suggests a corrective triangle. If that interpretation plays out, then the pattern for the Italian ETF should present at least one more three-wave move upward before bears are able to take control again,” according to See It Market.