Stay On The Defense

by on December 12, 2011 | ETFs Mentioned:

Last week shaped out to be yet another range-bound trading frenzy, dominated by fear induced selling in the early part of the week, and ending with a modest rally on Friday as investors cheered on the developments at the summit in Brussels. Gold drifted lower towards $1,700 an ounce amidst the uncertain backdrop. The precious metal has been losing its luster lately as broad-based profit taking across commodities has proven to be a headwind for the yellow metal’s appeal as a safe haven [see Simple (But Effective) Safe Haven ETFdb Portfolio]. Although fear in the market, as measured by the Volatility Index (VIX), decreased considerably last week thanks to the positive developments in Brussels; the VIX remains above 25, a worrisome level which it has held since the U.S. credit quality in early August.

Weekly Outlook

The coming week will be stacked with economic data releases and important central bank meetings both at home and on the international front. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • CurrencyShares British Pound Sterling Trust (FXB): United Kingdom Consumer Price Index is slated to come out on Tuesday and analysts are expecting for a down tick in inflation to 4.8%, from the previous reading of 5.0%. The British pound may encounter volatile trading if investors are worried that economic growth is slowing down to worrisome levels.
  • SPDR S&P Retail ETF (XRT): U.S. retails are due to come out Tuesday morning before the opening bell and XRT could see an increase in trading volumes as investors scramble to adjust their positions; analysts are expecting for a 0.6% increase versus the previous reading of 0.5%.
  • PowerShares DB USD Index Bullish (UUP): On Tuesday afternoon the U.S. Federal Open Market Committee is slated to announce its decision regarding interest rates and offer investors commentary on the economic outlook. The U.S. dollar, and likewise UUP, may take on safe haven appeal if the latest FOMC meeting spooks investors.
  • iShares MSCI Switzerland Index Fund (EWL): Swiss equities may experience volatile trading as the Swiss National Bank holds its interest rate meeting on Thursday, offering insightful economic commentary after the rate decision itself.
  • CurrencyShares Euro Currency Trust (FXE): The euro may very well encounter volatile trading in the currency markets as investors digest the latest CPI reading out of the debt stricken currency bloc; analyst are expecting for inflation to come in at 1.6%.
  • iShares Barclays Aggregate Bond Fund (AGG): On Friday, investors may flock to the U.S. investment grade bond market if the latest CPI release paints a gloomy picture; analysts are expecting for inflation to come in at 3.5%.

Market conditions will likely continue to favor short-term and momentum traders seeing as how the persistently high levels of volatility are certainly discouraging buy-and-hold investors from jumping in. Despite last week’s summit in Brussels, much of the Euro zone debt drama remains unresolved seeing as how lawmakers have only taken the first step in the right direction, on what is shaping out to be a long and grueling journey. 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: Short DIA

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