Stocks Brace For Rate Decisions

by on March 4, 2013 | ETFs Mentioned:

Last week gave the bulls a scare as profit taking pressures swiftly knocked down major indexes at the start of the week, however, buyers poured in and helped the market regain its footing by the closing bell on Friday. After failing to post fresh highs last week and enduring volatile trading, U.S. equity indexes could face stiff headwinds this week ahead of resistance levels as investors digest several central bank interest rate decisions from around the globe [see also How To Hedge With ETFs].

Weekly Outlook

Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • IQ Australia Small Cap ETF (KROO, C): Australian equities could see a volatile open Tuesday morning as investors react to the overnight Reserve Bank of Australia rate decision. Analysts are expecting for the rate to remain unchanged at 3.00%, although economic commentary issued after the report could offer additional insights.
  • Canada Bond Index Fund (CAD, B): The rate decisions will continue with the Bank of Canada on Wednesday morning which is expected to hold interest levels steady. CAD could be in for a volatile session as investors look to move in and out of safe havens depending on the latest economic outlook issued by the bank.
  • MAXIS Nikkei 225 Index ETF (NKY, B+): Japanese equities will come into focus Thursday morning as investors react to the overnight Bank of Japan rate interest rate decision. Analysts are expecting to hold rates steady at 0.10%, however, policymakers may inpsire choppy trading given the yens’ volatile performance in the currency market.
  • CurrencyShares Euro Currency Trust (FXE, A): The European Central Bank rate decision is slated to take place Thursday morning before Wall Street’s opening bell, which could cause FXE to gap in either direction depending on investors’ reaction in the currency market. Analysts are expecting for policymakers to raise rates from 0.75% to 0.8%.

It was encouraging to see bargain buyers step in the days immediately following last week’s sell-off. What’s concerning however is the fact that the S&P 500 Index has been grinding along a resistance level, leading some to believe that the long-awaited “top” is finally starting to form. This benchmark hit a five-year high of 1,530 on 2/19/2013, and since then, it has failed on two occasions to hurdle back over the 1,525 level. From a technical perspective, the longer-term uptrend is by all means fully intact, however, we advise setting tight stop losses for those entering at current levels in case of an unexpected pullback.

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 ILF

Pro Membership Required to Continue Reading ETFdb Pro

To continue reading this article, you must be an ETFdb Pro member. Please login or begin your 14-day free trial to continue reading. There are several benefits to becoming an ETFdb Pro member today:
  • Register on ETFdbAccess to 50+ All-ETF model portfolios. Whether you're a long-term, buy-and-hold investor or a more active trader looking to establish a tactical position, our collection of ETFdb Portfolios has something for everyone.
  • ETFdb Realtime Ratings show you exactly where each fund stacks up next to the competition. Get objective, in-depth, custom research on every ETF.
  • Pro members have Unlimited Excel Download capabilities across the entire database; users can easily download more than 200 data filled paged and also export results to Microsoft Excel from every tool.
  • Get ETF Picks of the Month. For active investors seeking ETF investment ideas, our team analyzes technical and fundamental price drivers of more than 1,400 ETFs to identify both short and longer-term opportunities with a focus on absolute returns. Recommendations are actionable investment ideas that are poised for outperformance over the next week to 90 days.

Begin Your Free 14-Day Trial Now

Disclosure: No positions at time of writing.