Fear ran wild across every corner of the financial markets last week and nearly every asset class fell victim to brutally volatile trading. Friday was the only day during which the Dow Jones Industrial Average did not swing by more than 400 points, managing to regain some of the losses on Thursday and Friday and end the week lower by less than 2%. Amidst all of the uncertainty, gold made yet another run higher and futures prices for the hot yellow metal hit record highs, soaring to $1,817 an ounce on Wednesday evening.
The coming week is sparse with major economic data releases, although investors will have a plateful of inflation data to digest as CPI data for the United Kingdom, Canada, and U.S. is slated come out. At home, housing market and industrial production data will take center stage as investors look for reassurance that the economy is not (too far) off track. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:
- WisdomTree Japan Hedged Equity Fund (DXJ): On Sunday evening Japan GDP is released and depending on the investor’s reaction overseas, DXJ could gap in either direction Monday morning when Wall Street opens. This ETF may appeal to some investors since it is designed to provide exposure to Japanese equities, while at the same time hedging against fluctuations between the value of the U.S. dollar and the Japanese yen. Analysts are expecting GDP growth of -0.7% this quarter versus the previous reading of -0.9%.
- iShares S&P Europe 350 Index Fund (IEV): This fund will likely see an increase in trading volumes on Tuesday morning since a few hours prior to Wall Street’s opening bell Eurozone GDP as well as United Kingdom CPI are slated to come out. Investors will likely keep a close eye on these two reports, surely hoping for positive data given the absolutely dismal economic outlook for Europe lately.
- SPDR Homebuilders ETF (XHB): Investors will look for any hints of a recovery in the housing market as housing starts data for July comes out Tuesday morning. XHB could stage a comeback and regain some lost ground if the actual data results exceed analyst expectations of 600,000 or beat last months reading of 629,000.
- Vanguard Industrials ETF (VIS): Barely any security, let alone asset class, could escape last week’s wild selling, the industrials were hit particularly hard and may look to rally this week if investors have a reason to smile after U.S. Industrial Production data hits the street on Tuesday. VIS may see an increase in volatility as investors scramble to buy/sell depending if the actual results exceed analyst expectations of a 0.9% increase, versus the previous reading of 0.2%.
- iShares Barclays TIPS Bond Fund (TIP): This ETF could become the center of attention on Thursday as investors may flock to “safer” corners in the market after U.S. Consumer Price Index is released. Given the Fed’s recent announcement to hold rates steady until mid-2013, it’ll be very interesting to see how investor’s react to the latest inflation data. Analysts are expecting the CPI to decrease to 3.3% from last months reading of 3.6%.
- CurrencyShares Canadian Dollar Trust (FXC): This fund will likely gap at Friday’s open since volatility in the currency markets tends to increase after relevant data is released, and this time around investors will interpret the latest CPI reading for Canada. Analysts are expecting inflation to remain around 3.1%, while anything less than that may lead to uncertainty and potentially sink the Canadian loonie as investors prepare for a much slower than expected economic recovery.
Equity markets oscillated wildly last week, with domestic indexes surging 5% one day, only to fall and give it all back and then some the following day. Investors reacted a bit too much to the recent downgrade of U.S. credit quality in our opinion, considering that the debt ceiling drama dragged on in Washington because of political negotiations, while fundamentally the U.S. remains on a slow, but steady, path to economic recovery. Fears that France is next to be downgraded prompted yet another sell off on Wednesday, continuing this weeks theme of “more bad news”. 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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