The Cliff Becomes Reality

by on December 31, 2012 | ETFs Mentioned:

Everyone is hoping for a last minute deal, however, given the running track record of stiff gridlock in Congress, it’s highly unlikely that an agreement will be reached. It won’t be terribly surprising to see policymakers push forth a plan which somehow “kicks the can down the road”, after all, we didn’t find ourselves standing over the cliff overnight. After enduring a wild ride and managing to clinch gains in 2012, domestic equity markets will unfortunately start the new year under clouds of uncertainty as debt drama lingers [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:

  • Industrial Select Sector SPDR (XLI, A): Domestic industrial stocks will come into the spotlight on Wednesday morning as market’s digest the last ISM report from 2012. Analysts are expecting for this manufacturing figure to come in at 50.5 versus the previous reading of 49.5.
  • NASDAQ Global Auto Index Fund (CARZ, C+): Auto stocks may find themselves on the move Thursday as investors react to December’s motor vehicle sales report. Analysts are expecting for the sales figure to come in at 15.2 million versus the previous 15.5 million.
  • S&P 500 VIX Short-Term Futures ETN (VXX, A-): Volatility levels could spike early into 2013 if the latest U.S. employment report sends a wave of worry. Analysts are expecting for nonfarm payrolls to come in at 153,000, marking an improvement over last month’s reading of 146,000, while unemployment is expected to remain at 7.7%.
  • MSCI Canada Index Fund (EWC, B): Canadian stocks may also be in for a wild trading session on Friday as investors to the north digest employment data of their own. Analysts are expecting for Canada’s unemployment rate to tick higher to 7.3% from the previous level of 7.2%.

The S&P 500 Index remains in an uptrend from a technical perspective, although its most recent correction down to the 1,400 level surely has many worried as the benchmark now sits on major support. In terms of downside, any move lower could welcome accelerating selling pressures as key technical levels are breached and stop-losses are triggered. The next support level for the S&P 500 comes in at around 1,380 while resistance lies at the 1,450 mark.

Below, we have highlighted three 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.