Cautiously Bullish At Home

by on May 7, 2012 | ETFs Mentioned:

Mixed economic releases coupled with concerning nonfarm payrolls data left many scrambling to take profits, sending major indexes into red territory for the week. With earnings season in the books, investors will once again focus their attention on fundamental data releases along with headlines from the Euro zone. The week ahead looks to be clouded with uncertainty as parliamentary elections across the debt burdened currency bloc may very well spark volatile trading on Wall Street [see also 5 Simple ETF Trading Tips].

Weekly Outlook

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

  • Vanguard Small Cap ETF (VB): The small market-cap segment of the U.S. equity market will come into focus on Tuesday as investors digest the latest NFIB small business index data; VB could experience volatile trading if the figure misses the expected reading of 92.5.
  • iShares MSCI Australia Index Fund (EWA): Australian equities have come under pressure over the past few trading sessions following the recent rate cut by the Reserve Bank of Australia. Tumultuous trading may continue overseas following the latest employment data on Wednesday, with analysts expecting the unemployment rate to tick higher to 5.3% from the previous reading of 5.2%.
  • VelocityShares Daily Inverse VIX Short-Term ETN (XIV): Volatility levels could spike in either direction at home on Wednesday following the latest weekly jobless claims data. Analysts are expecting for 370,000 to have filed for unemployment benefits versus the previous reading of 365,00.
  • SPDR S&P China ETF (GXC): Investors will turn their attention overseas on Thursday evening as China releases inflation and new yuan loans data. GXC may gap in either direction on Friday morning depending on how markets’ react; analysts are expecting for CPI to come in at 3.4% along with 780 billion in loans.
  • CurrencyShares Euro Currency Trust (FXE): The euro will likely have a busy trading week as parliamentary elections overseas are sure to spawn more than a few dramatic headlines. FXE could accelerate downwards if heavy selling volume breaks support at the $129 level.

The Volatility Index (VIX) is back near the 20 mark, suggesting that uncertainty levels are elevated and will likely come down gradually; not surprisingly, Euro zone drama has resurfaced again as the currency bloc will have to digest results from a number of key parliamentary elections. We anticipate for Greek debt drama to steal the limelight (at least once this week) and put a strain on domestic equity indexes; we see support for the S&P 500 Index at 1,360, followed by the 1,340 level. In terms of upside, positive economic data releases will be necessary to bolster the Index back towards the 1,400 mark.

Below, we have highlighted three 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: Long RSP 

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Disclosure: No positions at time of writing.