As prospects continue improve for the beleaguered European economies, MoneyShow’s Tom Aspray goes in search of good buying opportunities in the Eurozone.

Even though stocks continued lower on Wednesday, there seemed to be less selling pressure as the market internals were not as negative as they had been earlier in the week. European markets are showing nice gains early Thursday, and if the gains hold into close of trading, it could be an early sign of a stronger rally.

The US markets are nervously awaiting the jobs report on Friday and a better-than-expected number could cause some short covering. On the other hand, a weaker-than-expected number will increase the growing skepticism over the US economic recovery. As noted on Tuesday, the weekly and daily charts show that prices are already approaching more important support.

There were some extreme oversold readings from the short-term indicators Monday as the Arms Index (TRIN) closed at 3.25, which was the highest reading since June 2012. The declining 20-day EMAs now represent first strong resistance. For the Spyder Trust (SPY), the 20-day EMA is at $179.45, at $86.26 for the PowerShares QQQ Trust (QQQ) and at $112.63 for the iShares Russell 2000 (IWM).

Even though we have recently seen some short-term weakness in US economic data, much of the data out of the Eurozone continues to indicate a recovering economy. Therefore, the current correction should present a good buying opportunity in the Eurozone and these are the three ETFs I like the best right now.

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Chart Analysis: The Vanguard FTSE Europe (VGK) has a yield of 2.74% and a low expense ratio of 0.12%.

  • It has approximately 500 stocks in the portfolio with the largest concentration in the United Kingdom, which makes up almost 30% of the ETF.

  • The ETF has over 13% each in France, Germany, and Switzerland.

  • The weekly chart shows that this week’s low of $55 is quite close to the weekly starc- band at $54.82.

  • The January high was $59.19 so VGK was over 7% below its highs this week.

  • There is even stronger chart support, line a, in the $53.30 area.

  • The longer-term uptrend, line b, is in the $51.50 area.

  • The weekly on-balance volume (OBV) did confirm the highs, line c, but has now dropped below its WMA.

  • The OBV staged a major upside breakout in August as resistance at line d, was overcome.

  • There is short-term resistance at $56.73 and then the quarterly pivot at $57.08.

The SPDR Euro STOXX 50 (FEZ) has a current yield of 2.75% with an expense ratio of 0.a 29%.

  • Over 80% of the stocks in the ETF are giant caps with 36% in France, 31.5% in Germany, and 12.2% in Spain.

  • From the high at $42.42, FEZ was down 8.4% from its high early in the week.

  • The weekly starc- band is at $38.15 with further chart support in the $37.80 area.

  • More important chart support, lines f and g, in the $36.80 area.

  • The weekly OBV peaked in November and did not confirm the new price highs.

  • This OBV as dropped well below the previous lows and has now reached the long-term uptrend, line i.

  • The gap between the OBV and its WMA is a sign that the OBV is oversold.

  • There is initial resistance in the $40 area with the quarterly pivot at $40.99.

NEXT PAGE: 2 More Ways to Play Europe

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The Wisdom Tree Europe Small-Cap Dividend (DFE) has a current yield of 2.48% with an expense ratio of 0.58%.

  • Over 83% of the 237 stocks in the ETF are mid- or small-cap stocks.

  • There are 24% of the stocks in the United Kingdom, over 15% in Sweden with 10% in Italy and Germany.

  • DFE formed a doji high at $60.55 and a low this week of $56.76 as the daily starc- band was tested.

  • The weekly starc- band is at $55.26 with the quarterly pivot (line a) at $55.18.

  • The daily OBV is holding up quite well as it did confirm the recent high and is well above the support at line c.

  • The weekly OBV (not shown) also confirmed the recent highs.

  • The 20-day EMA is now at $58.11 and a close back above $59.05 would be positive.

The iShares MSCI Spain (EWP) has a current yield of 2.86% with an annual expense ratio of 0.51%.

  • There are just 25 stocks in the ETF with 71% in the top ten holdings.

  • From the January 15 high of $40.86, EWP has lost 9.8%.

  • The breakout level, line d, and the daily starc- band were tested on Monday.

  • There is more important support in the $35.72-$36.15 area, line e.

  • The daily OBV is below its WMA but has held up much better than prices.

  • The uptrend, line g, is still holding with further support at the breakout level, line f.

  • The quarterly pivot at $37.49 is holding on a weekly closing basis.

  • The declining 20-day EMA is at $38.35 with a gap at $38.78 to $39.33.

What It Means: The continuing evidence that the economies of even the most depressed Euro countries have turned the corner favors investing in the Eurozone. In the early stages of a recovery, the mid- and small-caps stocks should do the best so the Wisdom Tree Europe Small-Cap Dividend (DFE) is my favorite pick.

The second favorite is the broadly based Vanguard FTSE Europe (VGK), but would avoid the large-cap SPDR Euro STOXX 50 (FEZ) for now. The weak volume action in FEZ makes me cautious.

A higher-risk and potentially high-reward pick is the iShares MSCI Spain (EWP), and once it is clear the global market correction is over, I may have additional country-specific recommendations.

How to Profit: For the Vanguard FTSE Europe (VGK), go 50% long at $54.88 and 50% at $53.92, with stop at $52.77 (risk of approx. 3%).

For the Wisdom Tree Europe Small-Cap Dividend (DFE), go 50% long at $55.38 and 50% at $54.32, with stop at $51.94 (risk of approx. 5.3%).

For the iShares MSCI Spain (EWP), go 50% long at $36.32 and 50% at $35.80, with stop at $34.85 (risk of approx. 3.6%).

Editor’s Note: If you’d like to learn more about technical analysis, attend Tom Aspray’s workshop at The Trader’s Expo New York, February 16-18, 2014. You can sign up here, it’s free.