NEW YORK (Fabian Capital Management) -- European exchange-traded funds have experienced a difficult summer amid a faltering currency and central bank that is scrambling to implement looser monetary policies.
On the surface, the recent announcement of further rate cuts and asset purchases to stimulate economic growth seems like a step in the right direction for the European Central Bank. However, reaction to the news by shares of European companies has been less than stellar.
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The Vanguard European ETF (VGK) recently fell back below its 200-day moving average and is now nearly 6% off its high established in July. Despite a brief rally attempt in August, this index of over 500 Europe-based stocks is now fighting to regain its uptrend.
It may face additional technical damage if the 50-day moving average crosses below the 200-day moving average. This is known as the "death cross" in technical parlance and appears to be a near-term event on the horizon.
That stands in sharp contrast to major equity indices of domestic and emerging market countries that are within 1% of their 2014 highs. The SPDR S&P 500 ETF (SPY) and iShares MSCI Emerging Market ETF (EEM) are showing much greater relative strength than Europe. In fact, VGK is clinging to the flat line this year while SPY and EEM are diverging upward.