The sovereign debt issues facing Europe have been week reported. The euro currency has suffered more than 10% since the announcement in November and the stocks have not fared much better. Yesterday Greece announced it was cutting $6.5 billion from spending and starting an austerity program to better its outlook. The global stocks rallied on the news the last few days as this has been anticipated. Now the question mark of, will it happen, hangs over their heads. However, Europe still has issues in Portugal, Spain and Italy to deal with as well. The UK is not exactly on the top of the growth list. Thus, the chart below looking at the ETF representing Europe, IEV.

As you can see the high in January was near the $40.50 level and the low in February was near $34.50. The decline of nearly 15% invites the question is the worst of this issue over and is there opportunity? Technically speaking we have to take into account the bottoming process over the last four weeks. This consolidation and hold of support definitely opens the door for some short term opportunities. Thus, we would need to define a strategy for putting this ETF into play. Define your entry, stop and target before every putting money at risk in any investment. This allows you to know up front the risk/reward relationship.

Using the chart we can define the entry as a break above resistance on the consolidation at $36.75 on above average volume. The stop would be a break below the entry point which would be a violation of the breakout. In this case we will use $35.10 or a risk of $1.65 (4.5%). The target would be a move back to the previous high of $40.50 or a gain of $3.25 (9%). If the risk/reward suits your criteria for investing you can take the position based on the defined discipline.

Managing risk is the single most important factor in managing your money. This is an example of seeing opportunities, evaluating the potential of the opportunity and defining a strategy for capturing the opportunity based on risk/reward.