Bulls Look To Data Before Resuming Rally

by on August 27, 2012 | ETFs Mentioned:

Major equity indexes kept afloat near historical highs last week although stocks ultimately failed to make a run higher despite Friday’s rally. Profit taking pressures prevailed throughout much of the week as resurfacing worries over an economic slow down in the debt-burdened European currency bloc reminded investors of looming threats. At home, investors reacted rather bearishly after the FOMC minutes, which hinted at more stimulus to come. Markets should see more trading activity this week as several key reports are expected to hit the street ahead of the extended upcoming holiday weekend [see also ETF Technical Trading FAQ].

Weekly Outlook

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

  • iShares Dow Jones U.S. Home Construction Index Fund (ITB): This ETF will come in and out of the spotlight throughout the week as housing data makes the headlines. Investors will react to Case-Shiller home price data tomorrow morning and pending home sales data the following day.
  • Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX): Volatility levels could spike higher on Wednesday if the latest revision to U.S. GDP estimates strikes a pessimistic tone among investors. Analysts are expecting for economic growth to come in at 1.7% versus the previous reading of 1.5%.
  • State Street SPDR S&P Retail ETF (XRT): The consumer discretionary sector, and retail stocks in particular, will come into focus on Thursday as personal income and consumer spending data from July hit the street. Analysts are expecting for personal income to have increased by 0.3% along with 0.4% growth in spending.
  • IndexIQ Canada Small Cap ETF (CNDA): Our neighbors to the north could experience a wild trading session to close out the week as GDP hits the street Friday morning. Analysts are expecting for Canadian economic growth to come in at 2.2% on a year-over-year basis compared to last quarters reading of 2.4%.

The Volatility Index (VIX) bounced back higher as expected, popping just above the 15 mark; what’s encouraging is that this translated into only a minor correction for stocks, showcasing the resilience of the bullish sentiment which has dominated Wall Street over the past few weeks. The S&P 500 Index held above the 1,400 level to close out the week and will look to pop above 1,420 again this week as a string of economic data hits the street and potentially offers a much-needed fundamental boost.

Below, we have highlighted three fundamental 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 UUP

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Disclosure: No positions at time of writing.