Greece Flirts With Default

by on October 3, 2011 | ETFs Mentioned:

Wall Street posted yet another up-down week of performance as domestic equity indexes fluctuated and ultimately fell victim to serious profit taking as the final trading session drew to a close. Worse-than-expected U.S. consumer confidence coupled with a decline in personal income were concerning data releases that only added to the piling uncertainty weighting down on stocks. Gold wasn’t much of a safe haven last week as the precious metal found it hard to rise back above $1,700 an ounce, and drew lower as the week went on, managing to settle just below the $1,650 mark on Friday. We anticipate for market volatility to remain high in the coming week as investors await guidance from European lawmakers as they compromise on a plan of action to aid Greece.

Weekly Outlook

The coming week is fairly busy with major economic releases on the international front, including several central bank meetings taking place. At home, investors also have plenty on their plate, including a key unemployment report on Friday. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • State Street Dow Jones Industrial Average ETF (DIA): ISM Manufacturing data for the month of September is slated to come out on Monday morning and the ultra-popular DIA will likely see a swing to the upside if the report surpasses market expectations and investors have a reason to cheer. Analysts are expecting for a slight drop in ISM down to 50.3, from last months reading of 50.6.
  • Rydex CurrencyShares Australian Dollar (FXA): The Reserve Bank of Australia is announcing its interest rate decision on Monday evening, which may lead to a gap in FXA following Tuesday’s opening bell. The Australian dollar has been quite weak over the past month and this performance will likely persist unless the RBA releases a reassuring outlook following the interest rate decision itself. Analysts are expecting for the rate to remain unchanged at 4.75%.
  • iShares MSCI United Kingdom Index Fund (EWU): British equity markets may see some volatile trading on Wednesday as the GBP Gross Domestic Product report is released. Analysts are expecting for year-over-year growth to remain at 0.7%. , while a drop in output will likely put more pressure on the already fragile Euro zone.
  • Rydex CurrencyShares Euro Currency Trust (FXE): The Euro is likely going to have another wild week in the currency markets as the European Central Bank meets on Thursday to announce its interest rate decision. More importantly however, investors will be paying attention to the commentary and outlook released after the decision itself. A bearish outlook by the ECB will easily spell trouble for equities across the globe as investor worries escalate. Analysts are expecting for the rate to remain unchanged at 1.5%.
  • Rydex CurrencyShares Japanese Yen Trust (FXY): The Japanese yen has been floating around in a frustrating trading-range versus the U.S dollar over the past two months. Analysts are expecting the rate to remain at 0.1%, and FXY will easily see an increase in trading volumes on Friday morning if the Bank of Japan deviates from market expectations in any way.
  • iShares Barclays 20 Year Treasury Bond Fund (TLT): U.S. unemployment rate is slated to come out on Friday morning and investors will be keeping a close watch on this report, hoping to see a sign of life in the stagnant job market. U.S. Treasuries may encounter some serious weakness on Friday if the unemployment report comes in better-than-expected and investors flow back into equities instead.

Our recommendation to remain on the sidelines continue to reward those who are patient. Equity markets have been a dangerous place for the faint of heart as volatile trading has seemingly become the new norm. We advise investors to buy in small increments if they are tempted to get in at the current levels. Were maintaining our wait-and-see approach until domestic equity indexes can close above key resistance levels, 1,200 for the S&P 500, on convincing high-volume trading. Below, we have highlighted some technical 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 IYT

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