The Dust Has Yet To Settle

by on September 12, 2011 | ETFs Mentioned:

Global equity markets went on a wild ride during the month of August, and judging from September’s roaring start, many investors are probably scratching their heads in disbelief. At home, economic data indicators have started to show a trend of deceleration,while the debt crisis overseas seems to dominate headlines and spark sell-offs of all sorts ever since the debt drama at home “passed”. Gold continues to thrive in this uncertain environment as prices for the precious metal hit $1,923 an ounce last week amidst the seemingly escalating chaos.

Weekly Outlook

The coming week will feature a considerable amount of economic data releases both on the home front and overseas. Inflation data from the United Kingdom and a New Zealand bank rate decision may potentially spark waves of volatility in the currency markets. At home, retail sales and consumer price index will be some of the more important releases that have a tendency to move the markets.       Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • Rydex CurrencyShares British Pound Sterling Trust (FXB): Expect this ETF to gap on Tuesday morning after the release of United Kingdom inflation data. Inflationary pressures have been steepening in the UK and analysts are expecting the CPI to come in at 4.5%, while a reading below last months 4.4% will most certainly surprise the majority.
  • SPDR S&P Retail ETF (XRT): U.S. retail sales are slated to come out before Wall Street’s opening bell on Wednesday. Consumer demand is expected to have weakened in August and analysts are expecting a drop to 0.2% from last months reading of 0.5%, while any surprises to the upside will likely push XRT higher.
  • WisdomTree Dreyfus New Zealand Dollar Fund (BNZ): The Bank of New Zealand is announcing its interest rate decision on Wednesday after U.S. markets close, potentially leading BNZ to gap at Thursday’s open. Analysts are expecting the rate to remain unchanged at 2.5%, however volatility in the currency markets will be quick to follow if the economic commentary that accompanies the decision gives investors more reasons to worry than cheer, or vice versa.
  • Rydex CurrencyShares Swiss Franc Trust (FXF): The Swiss National Bank is holding its interest rate decision on early Thursday morning overseas, and with the current rate at 0% and recent peg to the Euro, investors may find themselves eager to continue selling. Keep an eye on FXF as this fund has recently come down to its 200-day moving average.
  • PowerShares DB US Dollar Index Bullish (UUP): Consumer price index for the United States is slated to come out Thursday morning before the market opens, putting the spotlight on this popular currency ETF. The figure is expected to come in at 3.6%, while a weaker inflation reading will likely give the Fed more reasons to embark on yet on another round of stimulus.
  • iPath S&P 5oo VIX Short Term Futures ETN (VXX): This volatility ETF can itself running wild in either direction on Friday as Wall Street digests the most recent consumer confidence report from the University of Michigan. Analysts are expecting an increase to 56.5 from last months reading of 55.7.

Investors who have taken our sound advice since the beginning of August to be wary of bargain shopping have been rewarded nicely, while our suggestion to step to the sidelines following the U.S. credit quality downgrade has also turned out for the best seeing as equity markets have since spiraled into a volatile trading-frenzy. We expect for markets to remain volatile and range bound over the coming weeks, accompanied by strong rallies and quick sell-offs. Our suggestion to remain on the sidelines remains largely unchanged until there is solid economic data and a resolution of some sort in the debt-stricken Eurozone.  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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