Bears Are Lurking Around The Corner

by on January 30, 2012 | Updated February 3, 2012 | ETFs Mentioned:

After an up-down performance across equity markets last week, investors will look to revive bullish momentum on Wall Street as earnings season continues full speed ahead. The spotlight will also turn to Fed Chair Ben Bernanke as he is set to testify before Congress on Thursday, an event that usually comes away with a detailed outlook on our economy. Stocks have gotten off to a hot start in 2012 and will look to close out the first month of trading in bright green territory, however, several lingering concerns may derail the bull train; Euro zone jitters could very well resurface as investors fret over lackluster developments in the debt burdened currency bloc, while disappointing earnings at home will only add to the cloud of uncertainty.

Weekly Outlook

The coming week will be stacked with earnings releases and economic data reports on the home front. Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • SPDR S&P Retail ETF (XRT): Retail stocks will come into focus on Tuesday as investors digest the latest consumer confidence data; analysts are expecting for the figure to come in at 68, versus the previous reading of 64.5.
  • iShares MSCI Canada Index Fund (EWC): Canadian GDP is slated to come out Tuesday before the opening bell, which could lead to a gap in EWC if investors are surprised by the results. Analysts are expecting for economic growth to come in at 0.2% month-over-month, versus the previous reading of 0%.
  • First Trust NASDAQ Global Auto Index Fund (CARZ): This ETF may see an increase in trading volumes on Wednesday as investors react to the latest motor vehicle sales report. Analysts are expecting for January sales to come in at 13.5 million, unchanged from the previous month.
  • Vanguard Industrials ETF (VIS): Investors will turn their attention to the domestic industrials sector as the latest ISM Manufacturing report hits the street on Wednesday morning. VIS could experience volatile trading if the report blows past, or misses, analyst estimates; the figure is expected to come in at 54.9%, versus the previous reading of 53.9%.  
  • SPDR Gold Trust (GLD): Gold may be the center of attention on Thursday as investors on Wall Street react to Ben Bernanke’s testimony before the House Budget Committee. Bullish commentary regarding the U.S. economic recovery could put downward pressure on the precious metal.
  • Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX): U.S. markets will likely take cues from the latest employment report on Friday; analyst are expecting for the unemployment rate to come in unchanged at 8.5%. A worse-than-expected surprise may spark a sell-off, potentially paving the way higher for VXX.

With mixed earnings on the home front, and sparse developments overseas, many are fearful that U.S. markets are overdue for a pullback in the coming weeks. The macroeconomic picture remains clouded with uncertainty, largely stemming from Europe, although slower-than-expected growth at home may also give investors a reason to take profits off the table.  Below, we have highlighted three 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 EEM [hide 4]

iShares MSCI Emerging Markets Index Fund
Price Target $38
Time Frame 1 week

Analyst Take

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EEM has turned in an impressive year-to-date performance as investors have largely increased their risk appetite. However, we feel that this ultra-popular ETF may be due for a pullback this week from a technical perspective, while lackluster fundamental developments could just as easily tip it lower. Notice how this ETF has significant resistance around the $42.50 level; EEM has encountered serious selling pressures around this level on 8/18/2011, 9/1/2011, and 10/27/2011. This ETF currently appears to be facing familiar headwinds as it failed to summit this level once again last week. Were taking a short position with a stop loss at $43 a share, along with a price target at the $38 level.

Actionable ETF Idea #2: Long ZROZ

PIMCO 25+ Year Zero Coupon U.S. Treasury Index Fund
Price Target $115
Time Frame 1 week

Analyst Take

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ZROZ has been fairly range-bound this year since staging an impressive rally following the downgrade of U.S. credit quality in August of 2011. This ETF is now trading near the bottom half of its range, which extends from roughly the $100 level to its high at $117.94 a share (10/4/2011). Fundamental developments that could push this ultra-safe bond ETF higher this week include worse-than-expected corporate earnings, resurfacing Euro zone debt woes, as well as a potentially concerning testimony from Ben Bernanke on Thursday. Were taking a long position in ZROZ with a stop-loss at $104 a share, along with a price target at the $115 level.

Actionable ETF Idea #3: Short FXA

CurrencyShares Australian Dollar Trust
Price Target $102
Time Frame 1 week

Analyst Take

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The Aussie dollar has been on a tear since mid-December, however, a look back in history may point to a pullback in the foreseeable future from a technical perspective. FXA failed to summit the $107.50 mark last week, which has proven to be a significant resistance level; this ETF has encountered selling pressures when it has neared this price level on 9/1/2011 and later on 10/27/2011. History may repeat itself yet again, seeing as how FXA failed to close above $107.50 a share last week, which may pave the way for profit taking throughout the week if investors look to scale back their risk appetite. Were taking a short position with a tight stop-loss at $107.50 a share, along with a price target at the $102 level.

Disclosure: No positions at time of writing.