No News Could Be Good News

by on August 6, 2012 | ETFs Mentioned:

Better-than-expected payrolls data brought back the bulls to end yet another choppy week on a high note. With no major economic data releases due out this week on the home front, investors will surely refocus their sights on European headlines. After investors were let down last week following the ECB’s failure to introduce new initiatives to ensure stability in the region, it’s very likely that new developments in the currency bloc will be heavily scrutinized [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:

  • CurrencyShares Australian Dollar Trust (FXA): This Aussie dollar ETF could gap at Tuesday’s open seeing as how Reserve Bank of Australia will announce its interest rate decision overnight. Analysts are expecting for the rate to remain unchanged at 3.5%, although the economic commentary issued after the rate decision itself will receive more attention.
  • FTSE China 25 Index Fund (FXI): Chinese equities will come into the spotlight as investors react to the latest inflation data from overseas on Wednesday evening. Analysts are expecting for China’s consumer price index to dip down to 1.7% from its previous reading of 2.2%.
  • Japan Hedged Equity Fund (DXJ): Investors looking to make a play on Japan’s equity market after the interest rate decision on Thursday should consider this ETF as it looks to mitigate currency market fluctuations, which are known to be rather wild after rate decisions. Analysts are expecting Japan’s rate to remain unchanged at 0.1%, although the economic commentary afterwards will be far more insightful than the rate decision itself.
  • IQ Canada Small Cap ETF (CNDA): Canadian small caps could experience volatile trading on Friday following the latest employment report. Analysts are anticipating for the unemployment rate to remain at 7.2% with 9.5K jobs added versus last month’s reading of 7.3K.

The S&P 500 Index has been marching consistently higher since the beginning of June; the benchmark has posted higher-highs and higher-lows and is not nearing previous resistance at the 1,425 level. Investors will likely require fundamental reassurance that lawmakers in Europe are ready to roll up their sleeves (even more) before the S&P 500 can make a new high on the year; support levels for the benchmark come in at the 1,325 mark. One potentially concerning observation for this week is the fact that the VIX is floating right above the 15 mark, a level which it has been known to bounce off.

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: Short XLY

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Disclosure: No positions at time of writing.