Buy On The Dip With Caution

by on June 11, 2012 | ETFs Mentioned:

Equity markets have kicked off the week on a positive note although profit taking pressures continue to lurk around the corner as analysts scrutinize the Spanish bank-bailout plan proposed over the weekend. Domestic major equity indexes appear to have regained their footing; the S&P 500 Index has bounced off support at the 1,275 level and the next obstacle will be hurdling over resistance around the 1,350 level. One potential concern is the fact that 30-year U.S. Treasury bond futures also appear to have regained their footing, which could foreshadow further volatility in the stock market if momentum returns to the fixed income space [see 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:

  • MSCI Germany Index Fund (EWG): This ETF may experience volatile trading on Wednesday as investors react to German CPI data released earlier in the day. Analysts are expecting for inflation to come in unchanged at 1.9% for the Euro zone powerhouse.
  • Market Vectors Retail ETF (RTH): Investors on the home front will turn their attention to the consumer discretionary sector as domestic retail sales data hits the street Wednesday morning. RTH may experience volatile trading depending on the latest results; analysts are expecting for the figure to come in at -0.3% versus the previous reading of 0.1%.
  • MSCI New Zealand Investable Market Index Fund (ENZL): This fund will come into focus on Thursday morning following the latest Reserve Bank of New Zealand Rate decision. Analysts are expecting for the interest rate to remain unchanged at 2.5%, although the economic commentary issued after the decision itself usually offers further insights.
  • PowerShares DB USD Index Bullish (UUP): The U.S. dollar could be in for a wild trading day on Thursday as investors digest the latest consumer price index data at home. Analysts are expecting for inflation to come in at 1.9% versus the previous reading of 2.3%.
  • Vanguard Industrial ETF (VIS): Domestic industrial stocks could become the center of attention on Friday as the latest industrial production data is released just after the opening bell. Analysts are expecting for May’s industrial production figure to come in at -0.1% versus the previous reading of 1.1%.

Bargain buyers have begun to step in at these attractive levels, however, looming Euro zone debt threats should be ruled out. Any sign of further weakness (or panic) in Spain is sure to spark another round of profit taking which could drag the S&P 500 Index down to its 200-day moving average around the 1,300-1,275 levels. Furthermore, the Volatility Index remains above the 20 mark which implies that uncertainty levels remain elevated; active traders are advised to sell into rallies and lock-in profits, while those with a stomach for risk can surely find more than a handful of lucrative bargain shopping opportunities.

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: Long EPU 

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Disclosure: No positions at time of writing.