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.
Related: Rome Extends Italy Banks, ETFs a Helping Hand
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.
[related_stories]“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.
Since the days of the Greek financial crisis, investors have frequently wondered which Eurozone shoe would be the next to drop. Italy has often been mentioned as that shoe and that sentiment has become widespread in recent months.
Related: 10 ETFs Hit the Hardest in ‘Brexit’ Fallout
Italian banks’ bad loan problem has “become more pressing during years of economic stagnation. A highly fragmented and inefficient industry doesn’t help — Italy has more than 600 banks, supporting 52 bank branches for every 100,000 adults. Germany has 14 bank branches per 100,000 adults, and the United States 38,” according to CNN Money.
“If the pattern truly is a triangle, then the limit for EWI’s near-term decline is 9.21, corresponding to the fund’s 2012 low. Beneath that level, we would have to assign a different interpretation. Also, beneath that level the decline could accelerate due to stops being hit. On the other hand, there is an attractive Fibonacci support area just above that price floor, near 9.81. June saw that support tested, and we are watching for a possible bounce from there,” adds See It Market.
iShares MSCI Italy Capped ETF
