Run For The Hills

by on July 23, 2012 | ETFs Mentioned:

Stock markets around the globe are off to a dismal start to the week as debt drama in Europe has managed to spill all over. Resurfacing, and intensifying, worries over the financial health of Spain, Italy, and Greece over the weekend sparked a massive sell-off overseas; authorities in Spain and Italy were even prompted to impose a temporary ban on short selling to help quell the volatility. Gary Jenkins, managing director at Swordfish Research, commented on the harsh reality of the situation, “It is possible that we are entering the period that will determine the future of the euro zone” [see also How To Lose Money Trading ETFs].

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 Australian dollar could face headwinds in the currency market during Tuesday’s overnight session as investors react to the latest CPI data, potentially leading FXA to gap at Wednesday’s open. Analysts are expecting for Aussie inflation to come in at 1.3% versus the previous reading of 1.6%.
  • SPDR Homebuilders ETF (XHB): This ETF will come into focus Wednesday morning as new home sales data hits the street on the home front. Analysts are expecting for this figure to come in at 375,000 versus the previous reading of 369,000.
  • MSCI United Kingdom Index Fund (EWU): United Kingdom GDP is slated to come out Wednesday morning before Wall Street’s opening bell, which may lead to volatile trading for EWU given the surrounding uncertainties stemming from neighboring Euro zone countries. Analysts are expecting for quarterly economic growth to come in -0.2% versus the previous reading of -0.3%.
  • S&P 500 VIX Short-Term Futures ETN (VXX): Volatility levels could soar even higher if worries over the U.S. recovery intensify on Friday following the latest GDP report. Analysts are expecting for U.S. economic growth to come in at 1.3%, marking a modest decrease from the previous reading of 1.9%.

The VIX has spiked big time as of Monday morning, confirming our commentary from last week in regards to anticipating a move to upside for the benchmark given its history of refusing to settle below the 16 level without a fight. The VIX should encounter resistance near the 22.50 mark if uncertainties continue to pour in this week, while a break above this level would be quite worrisome as selling pressures across equity markets would likely have to accelerate at a frightening pace. Corporate earnings may provide some relief on the home front, however, major equity indexes will likely continue to take cues from Europe, which has rightfully earned the label as the “epicenter of uncertainty”.

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 ECH 

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Disclosure: No positions at time of writing.