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Intermediate Trade: EWU ETF

A bearishly biased vertical put spread on this fund tracking U.K. stocks.
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The Trade: Buy 1 EWU January 35 put and sell 1 EWU Janaury 30 put for a 1.00 point debit. 

(EWU) is the trading symbol for the iShares MSCI (Morgan Stanley Capital International) United Kingdom ETF, which seeks to track the investment results of the MSCI United Kingdom Index.

EWU has about $2 billion in shareholder capital. EWU's current three- month moving average of its daily volume is 1.7 million shares. EWU is a popular trading vehicle with tradable markets and good liquidity.

Year to date EWU is up about 4%.

EWU over the past 52 weeks has traded between $32.82 and $38.05.

The longer term historical P/E for the FTSE 100 Index (Financial Times Stock Exchange 100) is about 16 which is about where it is today.

A few days ago, this report was made public: U.K. factory output falls the most since 2012

Key commentary for me was this: "LONDON--U.K. factory output fell in April at the steepest monthly pace since 2012, suggesting the weakness that the economy experienced in the first quarter has extended into the second. The decline will fuel concerns that the U.K. economy's slow start to the year had deeper causes than a patch of bad weather, and may add to doubts that the Bank of England will raise interest rates again this year."

This factory slowdown is happening now. And of course Brexit is on the horizon. Brexit brings with it many uncertainties that can cause factory output, and as well many other things financial, to underperform. Eventually economic under-performance is found in a lower stock market valuation for almost any stock and major market index.

Technically, EWU has a one year stochastic pattern that is rising but the one year RSI pattern continues to meander just below its mid-range. The lack of the RSI supporting the stochastic, the more suspect the upward move in the underlying (stock, ETF, etc).

The trade tactic I prefer now for EWU is the out of the money, bearishly biased vertical put spread expiring in January.

The trade is as follows:

Buy 1 EWU January 35 put and sell 1 EWU Janaury 30 put for a 1.00 point debit.

The suggested target to close for a gain is a bid of $1.50 and the suggested stop loss bid is $0.50.

Best to scale into the position using limit orders.

At the time of publication, Skip Raschke had no position in the securities mentioned.