Markets In Limbo

by on August 29, 2011 | ETFs Mentioned:

Equity markets were dangerously volatile last week, extending the ongoing theme of “uncertainty” for yet another week. Domestic equity indexes are largely stuck in “no man’s land”, and until there is some consistent price action above key support levels (above 1,200 for S&P 500), we recommend for most investors to stay on the sidelines. Even gold fell victim to volatility, as the precious metal shed more than $200 over the course of three days, managing to bounce higher on Thursday, and close back above $1,800 an ounce on Friday.

Weekly Outlook

The coming week is fairly stacked with a string of economic reports both at home and overseas. On the the home front, investors will digest through consumer spending and confidence data in the early part of the week, while the unemployment report on Friday will certainly be a focal point for many. On the international front, China manufacturing along with with German GDP will be key releases to pay attention to. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • SPDR Consumer Discretionary Select Sector (XLY): Investors may flock back to the discretionary spending corner of the domestic equity market depending on the latest consumer spending and personal income reports, slated to come out Monday morning. XLY could see an increase in trading volume as the relevant data is released; personal income is expected to increase to 0.4% from 0.1%, while consumer spending is expected to increase to 0.5% from -0.2% previously.
  • SPDR S&P Homebuilders ETF (XHB): The Case-Shiller home prices report is scheduled to come out on Tuesday morning, and XHB may see some volatility depending on whether investor’s expectations are met. Positive news from the housing market may even inspire a broad-based rally across equities, so long as investors are faced with encouraging fundamental data.
  • MSCI Canada Index Fund (EWC): Canadian equity markets may face some potential headwinds on Wednesday morning after investors digest the latest GDP report from the country. The previous reading came in at 3.9%, and while it’s doubtful that GDP will have expanded this time around, investors are nonetheless looking for an upbeat report and will not hesitate for a moment before dumping their shares of EWC.
  • Global X China Industrials ETF (CHII): This ETF which gives investors targeted exposure to the industrial sector in China, may see an increase in trading volumes on Thursday morning as investors scramble to readjust positions based on the latest China PMI Manufacturing report slated to come out on Wednesday evening. Analysts are expecting for the PMI to come in at 51, slightly better than last months 50.7
  • Van Eck Market Vectors Germany Small-Cap (GERJ): The Eur0zone has come under tremendous pressure lately given the deteriorating financial health of many member nations. Investors will surely keep an eye on German GDP, the economic backbone of Europe, when it is released Thursday night, with analysts expecting growth to come in at 0.1%. GERJ may see some volatility Friday morning if investor sentiment turns negative following a worse than expected economic report.
  • SPDR Gold Trust (GLD): Gold took a plunge lower this past week, although investors may come running back to this safe haven if the U.S. unemployment report grossly disappoints on Friday. The unemployment rate is expected to remain at 9.1%, and an uptick in this metric will likely translate into equity market weakness, potentially paving the way higher for GLD once more.

Investors on Wall Street were faced with another wave of volatility on Friday as Ben Bernanke’s speech seemingly pushed the markets of a cliff, although indexes rose well into positive territory as the panic-selling subsided. The Chairman held off from announcing another round of stimulus, instead he assured investors that the Federal Open Market Committee would consider its options during its next meeting in September. Equities have certainly edged higher off the recent market lows, however, we remain market-neutral until stocks demonstrate consistent strength backed by high volume. 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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