Stimulus Hopes Take Center Stage

by on June 18, 2012 | ETFs Mentioned:

After a week of worse-than-expected economic reports and ongoing tensions over Europe’s financial hopes, investors are looking ahead to this week’s FOMC meeting in hopes of a stimulus announcement. Elections in Greece have restored a bit of confidence nonetheless as early results over the weekend show the pro-austerity party in the lead. Despite this encouraging development, investors at home and overseas are still focused on rising Spanish and Italian bond yields[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:

  • Dow Jones US Home Construction index Fund (ITB): This ETF may see a surge in trading volumes throughout the week as housing market data hits the street. Housings starts are due out on Tuesday and analysts are expecting for a slight uptick, while existing home sales data is expected to dip slightly on Thursday.
  • SPDR Gold Trust (GLD): The precious yellow metal could easily fall victim to rampant profit taking pressures if Euro zone debt drama intensifies or investors react negatively to the latest FOMC announcement. Likewise, this ETF may be in for a massive rally if it is able to take on “safe haven” appeal.
  • CurrencyShares British Pound Sterling Trust (FXB): The British pound could be in for a volatile Wednesday morning as U.K. jobless claims data is released. FXB could easily gap in either direction at the open depending on the market’s reaction, although news from Spain or Italy can easily steal the headlines without notice.
  • MSCI New Zealand Investable Market Index Fund (ENZL): New Zealand equities will come into focus Thursday morning on Wall Street after investors digest the nation’s latest GDP data on Wednesday evening. Analysts are expecting for economic growth to come in at 0.4% for the quarter versus the previous reading of 0.3%.
  • IQ Canada Small Cap ETF (CNDA): This small cap ETF could be in for a volatile trading day on Friday depending on how market’s react to the latest Canada CPI data. Analysts are expecting for inflation to come in at 1.5% year-over-year versus the previous reading of 2.0%.

Euro zone debt drama continues to plague investors’ confidence as the currency bloc has yet to embark on a comprehensive solution for ensuring stability. Positive developments in Greece over the weekend are surely encouraging, however, Spain’s fragile health is still a much greater concern given the sheer size of its economy. Amidst the looming clouds of uncertainty, the Volatility Index (VIX) surprisingly cooled off a bit last week; the VIX has come down near the 20 mark once again, although from a technical perspective it may bounce higher in the coming days as it has in the past given its support at the said level.

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 FXG 

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Disclosure: No positions at time of writing.