Markets At Fed’s Mercy

by on September 19, 2011 | Updated September 21, 2011 | ETFs Mentioned:

Domestic equity indexes climbed higher day after day last week, posting a very green performance as investors showed some (temporary) relief over the debt drama in Greece. In the bigger scheme of things however, there have been no real concrete measures undertaken by the ECB to fully restore confidence back in European financial markets; for that reason alone, we expect that volatile range-bound trading will remain the dominant theme across equity and currency markets. Gold had a tough time last week as stock markets rallied and the precious metal crept lower, dipping below the $1,800 an ounce level as the week drew to a close.

Weekly Outlook

The coming week is quite lacking in major economic releases on the home front, while international investors will also have an uneventful week so to speak. At home, the Fed meeting will most certainly be the dominant event commencing on Tuesday, with the Open Market Committee announcing its decision on Wednesday afternoon. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • SPDR S&P Homebuilders ETF (XHB): U.S. housing starts are slated to come out on Tuesday morning with analyst expecting a moderate drop to 590,000, with last month’s reading coming in at 604,000. XHB is by far the most actively traded fund from the Hombuilders ETFdb Category, and this ETF could see some volatile trading if the data release paints a particularly poor picture for the U.S. housing market recovery. Keep an eye on this fund on Wednesday as well when Existing home sales are released. Analysts are expecting this figure to show an increase to 4.8 million from last month’s 4.67 million.
  • CurrencyShares Canadian Dollar Trust (FXC): The Canadian Consumer Price Index is scheduled to come out on early Wednesday morning, and this data release may spark some volatility in the currency markets, potentially leading to some high volume trading in FXC as Wall Street opens a few short hours later. The Canadian dollar has drifted lower against the greenback over the past month and this time around analyst are expecting for inflation to come in at 2.9%, versus last months reading of 2.7%.
  • iShares 7-10 Year Treasury Bond Fund (IEF): U.S. Treasury bond funds across the board are likely to see some volatile trading on Wednesday as the U.S. FOMC announces its interest rate decision a little after lunch time. If another round of stimulus is announced, intermediate to long-term Treasuries may take on an increased appeal amongst safe haven investors, potentially boosting IEF’s already strong gains for the year.
  • iShares MSCI New Zealand Investable Market Index Fund (ENZL): New Zealand has been a “shining star” so speak during the past few weeks as the country’s equity markets have held their ground quite nicely, managing to work their way higher while U.S. stock markets have remained plagued with volatile range-bound trading. This ETF could see an increase in trading volumes on Thursday morning after the New Zealand GDP data is released the previous night. Analysts are expecting growth to come in at 1.7%, a modest increase from last quarter’s 1.4%.

Our recommendation to remain on the sidelines has likely saved conservative investors from more than a handful of headaches and sleepless nights. We expect for choppy trading to continue across all equity markets until the debt drama in the euro zone is wrapped up completely. This week may be lacking in data releases, however, the suspense will be more than abundant as investors await for the FOMC decision, with many hoping for an additional round of stimulus in the face of a very sluggish recovery. Below, we have highlighted some technical trade 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.

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