Will The Supercommittee Surprise?

by on November 21, 2011 | ETFs Mentioned:

Resurfacing Italian debt woes paved the way for persistent volatility in the markets last week, further deteriorating the economic outlook of the financially fragile currency bloc. Selling pressures overwhelmed the bulls on Wall Street, despite a host of better-than-expected economic data releases on the home front, including surprisingly strong retail sales, new home starts, industrial production, as well as a drop in jobless claims. The media spotlight will likely remain fixated on the debt burdened Euro zone, while investors will also pay attention to the supercommittee in D.C., which is faced with devising a comprehensive “savings plan”. Gold failed to take on safe haven appeal all of last week as the precious metal was highly correlated with broad equity markets, settling lower for the week around $1,720 an ounce.

Weekly Outlook

The coming week will see a host economic data releases on the home front, while investors on Wall Street will have a shortened work week as the markets close down on Thursday in observance of Thanksgiving Day. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • Dow Jones U.S. Home Construction Index Fund (ITB): Existing home sales data released on Monday morning is expected to decline to 4.80 million from the previously reported 4.91 million. Investors might see increased trading volume in ITB as they gain a better idea of the health of U.S. housing market.
  • Dow Jones Industrial Average ETF (DIA): Analysts anticipate U.S. GDP to decline down to 2.3%, versus the previously reported 2.5%. DIA will most likely experience a gap Tuesday morning as the data is released shortly before the market opens.
  • Industrial Select Sector SPDR (XLI):  XLI will likely experience some volatility as analysts expect the U.S. durable goods orders to decline to -1.2% from the previously reported -0.8%. This data will serve as a good indicator for U.S. output to come.
  • MSCI Germany Index Fund (EWG): On Thursday, German GDP data will provide investors some insight on how the country is doing amidst the turmoil in Europe. EWG might experience higher trading volume if the report surprises investors, which are expecting no change in forecasts to the previously reported 0.5%.
  • MSCI United Kingdom Index Fund (EWU): The United Kingdom GDP data will also be released on Thursday which will serve as an indicator of overall U.K. growth. Analysts are expecting for the output to remain unchanged at 0.5% growth.
  • MAXIS Nikkei 225 Index ETF (NKY): NKY may experience a gap Friday morning as Japan CPI data is released on Thursday after market close. This data will serve as a measure of inflation, providing investors with insights as to how the how economic growth in the country is progressing.
  • MSCI Italy Index Fund (EWI): Italian retail sales data is released early Friday morning and investors will look to EWI to see how the highly volatile Italian market will react to this data.

The shortened trading week may see relatively high volatility as investors scramble to move in and out of positions before the weekend. Also, low trading volumes are to be expected, which further increases the possibility of wild swings in the market. Debt drama is now the name of the game as both the U.S. and Euro zone are faced with ensuring financial stability and restoring confidence back in the markets.  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 EPU

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