Buy On This Dip With Caution

by on October 22, 2012 | ETFs Mentioned:

After a very sour finale last week, domestic equity indexes appear to be holding their ground and are poised for a bounce back as bargain buyers stepped in Monday morning. Regional elections in Spain over the weekend sent yields on Spanish debt higher, however, the euro remained resilient as investors expressed their optimism over the nation’s future in the currency bloc. Growing political pressure on the Bank of Japan to pull the stimulus trigger continues to sink the yen lower, while corporate earnings remain at the center of attention on the home front [see Free 7 Simple & Cheap All-ETF Model Portfolios].

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, A-): After posting a positive performance last week, this ETF will look to sustain its bullish momentum as more housing data hits the street. ITB could see an increase in trading activity on Wednesday as new home sales data comes out, or on Thursday when pending home sales are released.
  • VelocityShares Daily Inverse VIX Short-Term ETN (XIV, B+): Volatile trading could erupt on Wall Street following the latest FOMC statement on Wednesday afternoon. If market’s react positively to the Fed’s latest outlook, XIV could resume its uptrend with full force.
  • Vanguard European ETF (VGK, A+): European markets may get a lift on Thursday morning following the latest GBP gross domestic product report. Analysts are expecting for Britain’s economy to have expanded by 0.6% in the third quarter versus the previous reading which showed a minimal contraction.
  • State Street Dow Jones Industrial Average (DIA, A): U.S. stocks will come under pressure on Friday morning as investors digest the latest GDP reading along with consumer sentiment data. Analysts are expecting for economic growth to come in at 1.8% versus the previous reading of 1.3%

The S&P 500 Index is currently trading in a “sweet spot” so to say from a technical perspective. As this benchmark neared the 1,470 level last week, familiar profit taking pressures resurfaced; the S&P 500 Index failed to summit this major resistance level for a third time, and went onto retest support around the 1,430 mark. Unless more buyers step in at current levels over the next few days this week, major equity benchmarks could see further downside and post lower-lows as earnings season rolls on.

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 GDX

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Disclosure: No positions at time of writing.