Technicals Favor Stocks

by on October 1, 2012 | Updated October 5, 2012 | ETFs Mentioned:

Despite a number of choppy trading sessions on Wall Street last week, major equity indexes remain in an uptrend as buyers have returned on every dip. Mixed economic reports at home will continue to take a backseat to headlines from Europe as the debt crisis overseas remains a much more important catalyst for global markets. Confidence is surely building as the latest Spanish stress-test was well received, although a continuing economic slowdown in China will likely add to the looming clouds of uncertainty. Fed minutes and employment data at home coupled with a European Central Bank rate decision should lead to an eventful week of trading on Wall Street [see Free Report: Seven Simple & Cheap All-ETF Model Portfolios].

Weekly Outlook

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

  • First Trust NASDAQ Global Auto Index Fund (CARZ): Car manufacturers may rally higher following the latest motor vehicle sales report due out after tomorrow’s opening bell. Analysts are expecting for September’s figure to come in unchanged at 14.5 million.
  • IndexIQ IQ Australia Small Cap ETF (KROO): Australian stocks will come into the spotlight as investors digest the latest economic commentary following the overnight Reserve Bank of Australia rate decision. KROO could be in for a volatile session if the benchmark rate deviates from analysts’ expectations of 3.5%.
  • WisdomTree Euro Debt Fund (EU): European bonds will likely remain on edge ahead of Thursday’s European Central Bank rate decision. While the benchmark rate is expected to hold steady at 0.75%, economic commentary following the rate decision itself could serve as a major catalyst on the day.
  • Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX): Volatility levels could end the week on a high note following the reaction to the latest monthly U.S. employment report. Analysts are expecting for the unemployment rate to climb to 8.2% from 8.1% previously.

Last week, the S&P 500 Index corrected lower and ultimately held above the 1,430 level, while the Volatility Index (VIX) failed to rally past the 17 mark. In the meantime, the U.S. dollar index and Treasuries crept higher, although pressures from these safe havens clearly wasn’t enough to inspire a steep sell-off on Wall Street. As such, this week should provide an opportunity for the bulls to resume the uptrend, however, a break below key support could welcome a deep pullback. For the S&P 500 Index, immediate support comes in at the 1,430 level while major resistance lies at the 1,475 mark.

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 XLI

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Disclosure: No positions at time of writing.