Be Wary Of Bargain Shopping

by on August 8, 2011 | ETFs Mentioned:

Wall Street plunged into the abyss last week as investors prepared for the worst after the ECB and Bank of Japan intervened in the markets, sending widespread waves of fear, and inducing one of the worst sell-offs that the market has seen since the dismal days of 2008. Domestic equity indexes fell over 4% on Thursday alone, and even safe havens like gold tanked lower as investors took profits from virtually every corner of the market, except U.S. Treasuries. Gold finished the week higher closing near $1,665 an ounce, while crude oil fell lower all week, closing just above $87 a barrel on Friday.

Weekly Outlook

The coming week is sparse with economic data releases on all fronts. At home, investors will look forward to retail sales and consumer confidence on Friday. News from overseas will be very light as well, with a Bank of England inflation report and Australian unemployment rate taking the center stage. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • PowerShares DB USD Index Bullish (UUP): This ETF will come into focus on Tuesday afternoon as the U.S. Federal Open Market Committee announces its decision regarding interest rates. Given last week’s rampant selling and escalating levels of uncertainty, it is very likely that investors will pay close attention to the economic commentary issued after the decision itself. Analysts are widely expecting the interest rate to remain unchanged at 0.25%, while the market’s reaction can quickly and easily move UUP in either direction.
  • iShares MSCI United Kingdom Index (EWU): The Bank of England is releasing its monthly inflation report on Wednesday morning. Investors will surely keep an eye on this piece of information given the fragile financial health of Europe as a whole, and likewise, EWU could see an increase in trading volumes as investors scramble to move in and out of British equities.
  • Rydex CurrencyShares Australian Dollar (FXA): The Aussie dollar could see some volatility in the currency markets Wednesday evening as the nation’s unemployment rate is released. The current rate stands at 4.9% and any surprises to the downside will likely result in FXA gapping lower at Thursday’s market open.
  • SPDR S&P Retail ETF (XRT): This ETF will likely see an increase in trading activity on Friday since U.S. retail sales are slated to come as the market opens. XRT could move higher if domestic retail sales exceed last month’s reading of 0.1%, although analysts have raised the bar a bit and are expecting a 0.5% increase for July.
  • iShares COMEX Gold Trust (IAU): U.S. Consumer Sentiment is scheduled to hit the street on Friday after the market opens and analysts are expecting an increase to 64.1, from the previous reading of 63.7. If the reading comes in way below expectations it’s very likely that investors will have all the more reason to flock to “safer” corners of the market, including IAU which provides exposure to the spot price of gold bullion.

Equity markets drifted lower in the beginning of last week as investors were reluctant to jump back into the street even after lawmakers in Washington passed the dreaded debt-ceiling bill. Thursday turned out to be one of the worst days in a while, as equity indexes plunged and investors sold off virtually anything and everything in their portfolios after the ECB and Bank of Japan intervened in the markets, sending waves of fear across financial markets around the globe. Stock indexes are simply stuck in “no man’s land” at the moment, and any additional pessimism, whether justified or not, will easily spark another rampant sell-off. Below we have highlighted some technical trade ideas for the upcoming week. Just note that most of these recommendations require active management as they are only relevant for a very short period of time. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.

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