Scattered signs of deteriorating fundamentals are leading us to take a cautiously bullish stance on the markets this week. Looking back, worse-than-expected durable goods orders and GDP data were quickly ignored by the equity bulls last week, which could set the scene for a steeper correction this week as long as earnings results can rattle investors’ confidence [see also How To Hedge With ETFs].
Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:
- CurrencyShares Canadian Dollar Trust (FXC, A): The Canadian loonie may be in for a wild trading session on Tuesday as investors react to Canada’s latest GDP report prior to Wall Street’s opening bell. Analysts are expecting the latest economic growth reading to come in at 1.3% versus the previous figure of 1.0%.
- Global X China Industrials ETF (CHII, B-): Chinese equities will come into the spotlight at Wednesday’s opening bell as investors react to the overnight manufacturing PMI data. Analysts are expecting this closely watched figure to post a minor decline from 50.9 previously to 50.7 this time around.
- MSCI EMU Index Fund (EZU, A-): European stocks will be in the “hot seat” this Thursday morning as markets react to the latest European Central Bank rate decision. Analysts are expecting rates to be slashed down to 0.50% this time around from 0.75% previously.
- S&P 500 VIX Short-Term Futures ETF (VXX, A-): Volatile profit taking could sweep over Wall Street this Friday following the April U.S. employment report. Analysts are counting on the unemployment rate to remain unchanged at 7.6% while nonfarm payrolls are expected to come in at 148,000 compared to last month’s paltry 88,000.
From a technical perspective, the uptrend on Wall Street remains fully in-tact and largely unchanged; last week’s rally predictably came just as the S&P 500 Index managed to hold above key support at the 1,540 level. However, double-top fears have returned as the S&P 500 Index failed to summit 1,600, marking its second failed attempt this month at conquering this historically significant resistance level. Any dips down to 1,540 should be treated as minor pullbacks, while a break below this support level would signal a larger correction at hand.
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: Short XLI
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Disclosure: No positions at time of writing.