Momentum Hinges On ECB Hopes

by on July 30, 2012 | ETFs Mentioned:

After enduring another choppy trading week, markets blasted off higher to end the week on a positive note, as investors’ reacted with great optimism that European lawmakers would step up and ensure stability in the financially fragile currency bloc overseas. Earnings at home remain a mixed bag, while housing market data has also turned from hopeful to sour, adding to the list of uncertainties looming over Wall Street. Investor’s will keep a close watch on the European Central Bank rate decision this Thursday, given the anticipation that lawmakers will step up their fiscal-firepower [see also ETF Technical Trading FAQ].

Weekly Outlook

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

  • SPDR S&P Retail ETF (XRT): Retail stocks will come into focus Tuesday morning as investors react to the latest consumer spending data. Analysts are expecting for this figure to come in at 0.1% versus last month’s flat reading.
  • CurrencyShares Canadian Dollar Trust (FXC): The Canadian loonie could experience volatile trading on Tuesday morning, and potentially lead to a gap in shares of FXC, as investors react to the latest GDP report. Analysts are expecting for Canadian economic growth to come in at 2.0%.
  •  S&P 500 VIX Short-Term Futures ETN (VXX): Volatile trading across equity markets may ensue after the U.S. FOMC decision on Wednesday afternoon. VXX could be in for a wild day as investors react to the latest economic commentary from Fed Chairman Bernanke.
  • MSCI EMU Index Fund (EZU): European markets will undoubtedly steal the spotlight on Thursday following the latest ECB rate decision. More important than the interest rate itself will be economic commentary, as investors look for reassurance that lawmakers remain committed to ensuring financial stability in the region.

The VIX has cooled off from last week’s spike in volatility, however, it’s going to take several weeks most likely before uncertainty levels settle closer to the 15 mark for good. Pessimism from the latest FOMC meeting this week, or uninspiring comments from the ECB on Thursday may serve as the catalyst for sparking another round of selling; if bearish pressures return, the VIX could spike back to the 20 mark, while a close on the week below the 16 mark would be a major sign of optimism.

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.