EFA, the iShares MSCI EAFE Index Fund (ETF), typically pays two dividends a year, but they are not equal. The June dividend is usually two to three times the December dividend:
Assuming the ETF will pay a similar dividend at the end of this month, and assuming EFA stays around the current price of 57.15, a quick 2% profit could be made, and you could be set up to quickly make more.
There are a few things that would have to work out here. You would have to be a holder of record in the ETF by the last week of June. And, EFA typically drops on the ex-dividend date by the amount of the dividend. However, if the ETF is in an uptrend, it usually quickly recovers the dividend drop. So EFA cannot be in a downtrend.
Currently, EFA appears to be in a trading range. It has dropped near the bottom of the range. If the bottom holds, AND EFA rebounds off it and appears likely to head towards the top of the trading range, that could be a good time to enter a position in EFA – that is, to become a shareholder before the holder of record date (not announced, but likely to be in the last week of June).
Chartwise, the stochastics indicator suggests the ETF is coming off an overbought condition. If EFA settles down around the May lows, stochastics may drop down into the oversold area (below 25). If the ETF then began a rebound, this normally would be a higher probability trade setup. But in this case, it also means the ETF might quickly rebound from any ex-dividend drop.
So even if ETF stayed around the current price of 57.15, you could make a quick 2% or so just from the dividend payment. And if and when EFA returned to the top of the trading range, you could close the position with several percent more profit.
There are several things that would have to work out in this trade. But with EFA near the May lows, you could set a stop-loss just below the lows, defining a good reward-to-risk trade.
A final note – there are external market influences that could quickly change the picture for this, or any other trade. The Fed has a meeting this week, and on Wednesday afternoon Janet Yellen may announce an interest rate increase. Also, the chances of a successful ‘Brexit' vote may really throw the markets off.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
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Gregg Harris is the Chief Technical Strategist at MarketTamer.com.
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