Set Your Stops And Targets Tight

by on August 20, 2012 | ETFs Mentioned:

Rain clouds gathered over the bull parade this weekend as Germany’s Bundesbank reiterated its concerns over the European Central Bank’s proposal to buy back government bonds. Profit taking pressures kicked off trading as uncertainty returned back to the markets after seemingly fading away in the last two weeks. Overseas markets will look for a definitive plan from the ECB while investors at home will digest Fed minutes and July durable goods orders, setting the scene for a potentially choppy trading week on Wall Street [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:

  • PowerShares DB USD Index Bullish (UUP): The U.S. dollar could be in for a volatile day of trading on Wednesday as investors react to the latest FOMC minutes. The release will offer insights into the health of the economy and could spark a flight to the safe-havens if it leaves investors feeling pessimistic.
  • iShares Dow Jones U.S. Home Construction Index Fund (ITB):  This housing sector will come into the spotlight on Thursday as investors digest new sales data and FHFA home prices. Analysts are expecting for the July sales figure to come in at 365,000 versus the last reading of 350,000.
  • Vanguard Industrials ETF (VIS): Domestic equity markets, and industrial stocks in particular, will pay close attention to Friday’s durable goods orders release as it should offer valuable insights into the health of the manufacturing sector. Analysts are expecting for this figure to have expanded by 3.5% versus the previous reading of 1.3%.
  • CurrencyShares British Pound Sterling Trust (FXB): European markets will likely take cues from the latest GBP gross domestic product release. Analysts are expecting for economic growth to come in at -0.5% versus the previous reading of -0.7%; a surprise in either direction can easily pave the way for volatile trading for the pound in the currency market.

Major equity indexes are still flirting with major resistance levels and thus its quite uncertain whether we will see another short-lived correction before the bulls charge higher. Given the string of improving economic data releases at home, investors confidence has improved despite the looming threats the overseas debt drama. The Volatility Index (VIX) has come down to the 13 level, which may suggest a round of profit-taking is long overdue seeing as how this benchmark has a difficult time staying below the 15 mark; as such, we advise traders to set their stop-losses and price targets tight given the potential for turbulent trading as markets float near highs.

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 EZA

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Disclosure: No positions at time of writing.