Bulls In Drivers Seat

by on October 24, 2011 | ETFs Mentioned:

Domestic equity equity indexes struggled near technical resistance levels all of last week, however, the bulls prevailed on Friday. The S&P 500 Index opened and closes every single day above the key resistance level at 1,200; quite a technical feat, given that it failed to break this this level three times in the past three months. Stocks markets are not out of the woods yet by any means as many hurdles remain. Until the Euro zone debt drama is answered and lawmakers present a comprehensive plan we anticipate for volatility to remain lurking in the background. Gold remains range-bound and the precious metal flirted with support at the $1,600 an ounce level last week, and held as anticipated.

Weekly Outlook

The coming week will focus on the European debt summit and any news from overseas may have a bigger impact on the markets than corporate earnings reports at home. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • Vanguard Consumer Discretionary ETF (VCR): U.S. consumer confidence is slated to come out Tuesday morning putting this popular ETF in focus as investors look for insights on consumer spending levels. Analysts are expecting for the confidence reading to come in at 46, a bit higher from last months reading of 45.4.
  • CurrencyShares Australian Dollar (FXA): This ETF may gap on Wednesday morning if serious volatility develops in the currency markets after the Australian consumer price report on Tuesday evening. Analysts are expecting a downtick in inflation, with estimates coming in at 3.5%, slightly below from last months reading of 3.6%.
  • SPDR Industrial Select Sector (XLI): The spotlight shifts to the industrial sector on Wednesday as the latest U.S. durable goods report comes out. Analysts are expecting for the figure to come in at -1%, modestly worse from last months reading of -0.1%.
  • SPDR Gold Trust (GLD): The precious yellow metal could see a trading frenzy develop if there are any surprising news, either positive or negative, that come out of the EU leaders debt summit on Wednesday.
  • iShares Barclays 20 Year Treasury Bond Fund (TLT): U.S. GDP is slated to come out on Thursday and analysts are expecting for growth to come in at 2.5%, versus the previous reading of 1.3%. If economic output is better-than-expected, investor confidence in equity markets may improve and put downward pressure on TLT.

Our recommendation to remain on the sidelines has proven to be rewarding for conservative investors and it seems that the the S&P 500 has finally cleared our outlined technical hurdle. Were becoming a bit more bullish on equities thanks to investor resilience over the past few weeks, and we look for stocks to close higher by the end of this week if momentum is to remain on the bull’s side. Below, we have highlighted some technical trading ideas for the upcoming week. 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.

Actionable ETF Idea #1: Long CORN

Teucrium Corn Fund
Price Target $45
Time Frame 1 week

Analyst Take

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CORN declined rather significantly after topping out at $50.69 a share on 8/29/2011. This ETF however has staged a nice rebound since bottoming out at $40 a share, and last week it held support at the $42.50 level. CORN made a move higher on Friday and closed at $43.34 a share, less than a dollar away from its 200-day moving average (yellow line). The next resistance level for CORN comes in at  $45 a share, from a conservative technical perspective. More experienced traders with dynamic profit taking techniques should also consider the $47.50 level as a the upper resistance, if CORN accumulates momentum in this rebound. We would consider a stop-loss at $42.50 a share.

 

Actionable ETF Idea #2: Long TUR

MSCI Turkey Index Fund
Price Target $50
Time Frame 2 weeks

Analyst Take

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When the market gives you ranges, trade them. It’s not difficult to spot technical trading ranges and TUR is a great example; notice how this ETF has oscillated between $45 and $50 a share since bottoming out at $42.30 a share on 8/10/2011. Support continues to hold at the $45 level as made apparent last Wednesday, when TUR dipped as low as $44.73 a share, and managed to close at $45.46 a share. We anticipate for TUR to bounce higher these coming days and we have set our price target at $50 a share. In terms of downside, declines in broad equity markets may create headwinds for TUR, in which case we advice traders to exit this long position if shares closes below the $45 level.

 

Actionable ETF Idea #3: Long DBB

PowerShares DB USD Base Metals Fund
Price Target $19.50
Time Frame 1 week

Analyst Take

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Despite Friday’s solid performance in the base metal sector, this important corner of the market is still down over 5% on the week as fears over a slowdown in China and a lack of economic growth in Europe conspired to push prices sharply lower. This seems somewhat unwarranted given that China is still growing at a solid clip and the nation appears ready to intervene in the market in order to boost growth as well. Secondly, there are no major releases from China this week so it appears unlikely that base metals will have a reason to slump based on data points. meanwhile, in Europe, a possible resolution to the debt crisis– or at least an attempt to kick the can further down the road– can be nothing but could news for base metals, suggesting that DBB is likely to move higher this week and recoup much of its losses from the previous five days.

 

 

Disclosure: No positions at time of writing.[/hide]