Europe Keeps Working, Particularly Ex the Euro. Charting HEDJ.
Foreign markets have made some headlines in recent months. The German Dax and French CAC 40 hit record levels toward the end of 2023. Those indexes are generally priced in local currency, and a rising dollar in 2023 led to relative underperformance among US-traded ETFs. The US Dollar Index (DXY) has consolidated around the key 104 level lately. Amid this FX volatility, non-US funds that hedge currency risk have their merit.
Research shows that hedging the dollar can work since US investors in international equities are susceptible to what is called “wrong-way” risk. That is, when stocks plunge, the move lower usually coincides with a surging dollar, compounding losses in foreign stock holdings. The WisdomTree Europe Hedged Equity Fund ETF (HEDJ) addresses this reality by focusing on holding shares in companies with significant exports while engaging in currency hedging to remove the risk of a declining euro.
What I like about HEDJ’s chart today is that it has climbed to new cycle highs as of last month, whereas traditional Europe index ETFs remain well under their mid-2021 highs. HEDJ has historically performed well during the first quarter, with shares rising 71% of the time in February and 79% in all March instances, according to data from Equity Clock. But what about the price action on the chart? I see positive signs there, too.
My featured chart illustrates that HEDJ continues to trend higher. Price is above both its rising 50-day and 200-day moving averages, and just recently held the key $41 to $42 zone. In terms of where the ETF may go from here, we can project a price target using the $31 low from October 2022 and the range highs between $41 and $42. That $10 to $11 height, added on top of the $42 breakout point, leads to a measure move price objective into the low $50s.
Research shows that hedging the dollar can work since US investors in international equities are susceptible to what is called “wrong-way” risk. That is, when stocks plunge, the move lower usually coincides with a surging dollar, compounding losses in foreign stock holdings. The WisdomTree Europe Hedged Equity Fund ETF (HEDJ) addresses this reality by focusing on holding shares in companies with significant exports while engaging in currency hedging to remove the risk of a declining euro.
What I like about HEDJ’s chart today is that it has climbed to new cycle highs as of last month, whereas traditional Europe index ETFs remain well under their mid-2021 highs. HEDJ has historically performed well during the first quarter, with shares rising 71% of the time in February and 79% in all March instances, according to data from Equity Clock. But what about the price action on the chart? I see positive signs there, too.
My featured chart illustrates that HEDJ continues to trend higher. Price is above both its rising 50-day and 200-day moving averages, and just recently held the key $41 to $42 zone. In terms of where the ETF may go from here, we can project a price target using the $31 low from October 2022 and the range highs between $41 and $42. That $10 to $11 height, added on top of the $42 breakout point, leads to a measure move price objective into the low $50s.