Looking Overseas For Opportunities

by on June 13, 2011 | ETFs Mentioned:

After a sixth consecutive week of losses, investors will be looking for some indication that the steady losses have been a bit of overkill and that a bounce back is warranted in coming sessions. Equity markets have tumbled past key technical and psychological levels in recent weeks, and anxiety is once again running high both in the U.S. and overseas.

Amidst this string of sell-offs, many of our technicals-based actionable ETF ideas have performed quite well (including a 1.5% jump in JJS last week). With a week full of important data releases ahead, we’re back with three more technical trade ideas featuring a time horizon suited for medium to longer term swing traders given their longer technical analysis perspective and lighter trading volumes during summer days.

Weekly Outlook

The coming week will keep investors busy as inflation data from major economies is ahead, while the domestic front will be fairly busy as well with retail sales and consumer confidence taking the spotlight [see Domestic Calendar]. Central bank meetings will be limited to the Bank of Japan and Swiss National Bank, and labor-market data from the Eurozone will likely attract some attention as well. Below we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • iShares China 25 Index Fund (FXI): On Monday night the Chinese Consumer Price Index is slated to come out and analysts are expecting an increase to 5.5% in year-over-year inflation from the last reading of 5.3%. FXI may gap significantly higher or lower depending on Tuesday at the market open given the fund’s heavy allocation to financials, and also depending on how investors react to the actual inflation data.
  • Rydex CurrencyShares Japanese Yen Trust (FXY): When the clock strikes midnight a few hours after China CPI data, the Bank of Japan will announce its interest rate decision. The current rate is 0.1% and analysts are mixed on expectations, which means that volatile trading in the currency markets will likely follow. Keep an eye on FXY as the fund tracks the Yen/USD exchange rate and may gap at the open on Tuesday after traders scramble to close or enter into new potions following the markets reaction.
  • iShares United Kingdom Index Fund (EWU): British Consumer Price Index comes out during European trading hours before Wall Street opens and inflation is expected to remain steady at 4.5%. Equities overseas have largely followed domestic large-cap indexes lower over the past month and a bullish reaction to the upcoming CPI release can help EWU stabilize at current levels.
  • SPDR S&P Retail ETF (XRT): Retail sales data is coming out on Tuesday morning as well and given the stock markets poor performance over the past month or so, it’s likely that an upbeat report will mean good news for equities as investors regain some confidence. XRT is the most liquid fund in the Consumer Discretionary Equities category and will likely see volatility trading activity if expectations are not met. Analysts are expecting a drop to -0.3% for the month of May from the last reading of 0.5%.
  • iShares Barclays TIPS Bond Fund (TIP): Wednesday morning U.S. Consumer Price index data hits the street and the TIP fund, which includes U.S. Treasury inflation-protected securities, could see an increase in trading activity as investors look to hedge against expected inflation. Analysts are siding with Bernanke on this one and expecting for the CPI to hold steady at 3.2%, while a lower than expected rate will likely mean trouble for equities.
  • Rydex CurrencyShares Swiss Franc Trust (FXF): The Swiss Franc could face potential headwinds versus the U.S. dollar in overnight trading prior to Thursday’s open given that the Swiss National Bank is scheduled to announce its interest  rate decision. FXF will likely gain some extra attention is the bank doesn’t hold rates at 0.25% as expected, or if investors react bearishly to any commentary released after the decision.
  • Vanguard European ETF (VGK): A few short hours later investors abroad will pay close attention as the CPI for the Eurozone is released, and even though analysts are expecting the core rate to hold steady at 1.6%, volatile trading could follow if actual inflation gives surprises investors. VGK is popular amongst many long term buy-and-hold investors given the funds competitively priced expense ratio, while EWG (Germany ETF) is the most liquid fund in the Europe Equities category as a whole.
  • First Trust Consumer Discretionary AlphaDEX (FXD): The headline news on Friday will the University of Michigan Consumer Confidence survey which assesses consumer sentiment regarding personal finances, businesses conditions, and purchasing power. Analysts are expecting an increase to 74.8 from 74.3. FXD, which employs the AlphaDEX stock selection methodology to select consumer discretionary stocks from the Russell 1000 Index, could gain some momentum if trading activity accelerates following the news release.

Technical Trading Ideas

Equity market performance remains dismal, and domestic indexes have broadly declined lower and shed around 2% last week. Summer months are usually light on trading volumes as many investors take a break from the trading action, and for that reason we have lengthened our time-horizon for generating the technical recommendations for this week. Most of these recommendations require active management as they are only relevant if the mentioned fund establishes support above the suggested levels. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques:

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