Bulls Running Low On Fuel, Catalyst Needed

by on September 17, 2012 | ETFs Mentioned:

QE3 arrived last week and investors expressed their approval of the Fed’s decision to enact another round of stimulus as markets rallied higher across the board. Although news of quantitative easing was well received on Wall Street, it’s really a double-edged sword because it implies that the Fed is more or less worried about the sluggish recovery at home, which sends a cautious fundamental alert to longer-term investors. With stimulus hopes off the table now, investors will need to refocus on economic data releases in search of the next catalyst  [see How To Pick The Right ETF Every Time].

Weekly Outlook

Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • iShares Dow Jones U.S. Home Construction Index Fund (ITB): Homebuilders stocks will come into focus on Tuesday morning after the opening bell following the release of the latest Home builders index; analysts are expecting for the figure to show a modest improvement, with estimates coming in at 38 following the previous reading of 37.
  • Rydex CurrencyShares Japanese Yen (FXY): The upcoming Bank of Japan rate decision this Wednesday could inspire volatile trading for the yen in the currency market. Although the interest rate is largely expected to remain unchanged at 0.1%, the commentary following the rate decision itself should offer valuable insights into the health of the nation’s economy.
  • iShares MSCI New Zealand Investable Market Index Fund (ENZL): This ETF could gap in either direction Thursday morning following the overnight reaction to the latest GDP reports. Analysts are expecting for New Zealand’s economy to have expanded 0.4% for the quarter versus the previous reading of 1.1%.
  • IndexIQ Canada Small Cap ETF (CNDA): Canadian stocks could be in for a volatile Friday trading session following the release of the latest Consumer Price Index. CNDA may stage a volatile reaction depending on the inflation reading; analysts are expecting for CPI to come in at 1.6% on a year-over-year basis.

The S&P 500 Index has cleared the 1,400 hurdle and the benchmark is now headed to 1,500 level following last week’s massive rally. It appears that markets will need to fall back on fundamental data releases in search of reasons to go higher, as opposed to stimulus hopes which have been keeping prices afloat over the last several weeks. With the Volatility Index (VIX) below the 15 mark again, the possibility of a short-lived correction grows; minor support for the S&P 500 Index comes in at around 1,440, while a break below the 1,400 level could welcome accelerating selling pressures.

Below, we have highlighted three fundamental 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: Long FXY

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Disclosure: No positions at time of writing.