Support Levels In Sight

by on October 15, 2012 | ETFs Mentioned:

U.S. stocks fell into the limelight last week as mixed earnings and continuing worries over the global recovery intensified after a number of bellwethers revised their outlook lower. Performance reports will continue to dominate headlines on the home front this week although key overseas developments may also become the center of attention. The Euro zone summit slated for the end of this week should offer insights as to whether or not Greece will move forward with austerity measures, while China GDP will look to restore confidence and erase manufacturing slowdown woes [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 Barclays TIPS Bond Fund (TIP): Inflation-protected bonds may take on safe haven appeal if the latest U.S. CPI report paints a worrisome outlook. Analysts are expecting for annualized CPI to come in at 1.9%, marking a minimal increase from the previous reading of 1.7%.
  • WisdomTree Euro Debt Fund (EU): This European government bond ETF could experience volatile trading on Tuesday morning following the release of the region’s inflation data. Analysts are expecting for the Euro zone consumer price index to come in at 1.6% versus the previous reading of 1.5%.
  • State Street SPDR S&P China ETF (GXC): With China GDP slated to come out Wednesday night, this ETF may gap in either direction the following morning. Analysts are expecting for China’s economic growth to come in at 7.4%, marking a minimal decline from its previous reading of 7.6%.
  • iShares Dow Jones U.S. Home Construction Index Fund (ITB): Domestic home builders will come into the spotlight on Friday as existing home sales data hits the street. Analysts are expecting for a small contraction in this figure, which could leech away some of the positive momentum building in the housing market over the past few months.

After sinking lower last week, the S&P 500 Index is now flirting with key support at the 1,420 level; a break below with mark would welcome accelerating pressures that would easily put the 1,400 level in sight. Unless earnings start to surprise to the upside across the board, or until there is a clear-cut answer for Greece, equities have few reasons to resume the ongoing bull trend with full force. Positive economic data will be an absolutely necessary catalyst to propel indexes to new highs, although this may prove to be a formidable challenge until uncertainties stemming from the presidential election at home subside. Immediate resistance for the S&P 500 Index comes in at 1,450, while the Volatility Index remains stuck in “no mans land” so to speak, which may welcome choppy trading with no definitive direction.

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 KRE

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Disclosure: No positions at time of writing.