ETF Insider: Sandy Rattles Wall Street

Euro zone drama is back in the headlines as sour retail sales data in Spain over the weekend spooked many. With Spain’s recessionary environment becoming more pronounced, it’s very likely that the European Central Bank will be forced to cut rates lower, or perhaps introduce a much “beefier” monetary policy initiative to ensure the nation’s financial health. At home, hurricane Sandy hit the east coast with ferocity, prompting the closure of U.S. equity markets on Monday, setting the scene for a potentially volatile trading week on Wall Street [see Free 7 Simple & Cheap All-ETF 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:

• CurrencyShares Japanese Yen Trust (FXY, B+): The Japanese yen may face volatile trading following the latest economic commentary issued after the Bank of Japan interest rate decision of Tuesday. Although rates are largely expected to remain unchanged, the need for further stimulus measures could prompt headwinds for the yen in the currency market.
• SPDR S&P Retail ETF (XRT, A-): The discretionary sector, and retailers in particular, could be in for a big trading day on Tuesday as consumer confidence data hits the street; analysts are expecting for this figure to come in at 73, versus the previous reading of 70.3.
• Market Vectors Hard Assets Producers (HAP, A+): The companies included in this ETF, which are principally engaged in the production and distribution of hard assets, may come under the spotlight this Thursday after ISM and construction spending data comes out. Analysts are expecting for ISM to dip lower to 50.8, while construction spending is foretasted to grow by 0.5% after contracting last month.
• S&P 500 VIX Short-Term Futures ETN (VXX, B+): Uncertainty may permeate Wall Street on Friday and lead to volatile trading depending on the latest employment report. Analysts are expecting for 120,000 nonfarm payrolls along with a uptick in the unemployment rate to 7.9%.

Last week was a real “nailbiter” as equity indexes continued to flirt with key support levels, setting the scene for either a steeper correction or a massive bounce higher. The S&P 500 Index broke below the 1,420 mark which was worrisome  although the benchmark managed to stay above the 1,400 level even as the Volatility Index remained above 17 to close out the week. This correction has been clearly waiting to happen for quite some time now, from a technical perspective at least, seeing as how even Friday’s bullish GDP results failed to spark buying in the markets. Immediate support for the S&P 500 Index remains at 1,400, followed by the 1,375-1,350 levels.

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 VIG