European Tensions On The Horizon

by on March 25, 2013 | ETFs Mentioned:

U.S. equity markets kicked off the week with a whimper as Cyprus bailout woes over the weekend rightfully took a bite out of investors’ confidence. The exact terms of Cypriot bailout remain hazy, however, one thing for certain is that it may set a dangerous precedent for the next bailout(s) in the European currency bloc as policymakers have agreed to a 20% tax on deposits at the two largest Cypriot banks [see also How To Swing Trade 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:

  • Industrial Select Sector SPDR (XLI, A): U.S. industrial stocks will come under the spotlight on Tuesday morning as investors digest durable goods orders data from February. Analysts are expecting for this figure to have expanded by 4.6% versus the previous reading which showed a contraction of 4.9%.
  • MSCI United Kingdom Index Fund (EWU, A-): U.K. equity markets will likely take cues from the latest GDP report on Wednesday. Analysts are expecting for the nation’s economic growth rate to come in unchanged at -0.3% for the quarter.
  • Canada Bond Index Fund (CAD, B): Canadian bonds could draw investors’ attention on Thursday if the nation’s latest GDP report comes in below expectation. Analysts are expecting for Canada’s GDP to post growth of 0.9% for the quarter versus the previous reading of 0.8%.
  • SPDR S&P Retail ETF (XRT, A): Domestic retail stocks could be in for a volatile trading session this Friday depending on the the latest consumer spending data. Analysts are expecting for personal income to post growth of 1% and consumer spending to post growth of 0.6% compared to the previous month’s readings.

Fears of a steep correction continue to plague investors’ confidence as virtually every pullback on Wall Street since the November 16th, 2012 bottom has been very short-lived. The fact that buyers have stepped in eagerly after every pullback is by no means bad, however, it does raise a few eyebrows among investors who are looking to establish long-term positions in the face of domestic equity indexes rallying to historical highs. We advise anyone looking to jump in long at current levels to exercise prudent risk management and utilize stop-loss orders in an effort to avoid getting washed out when the next steep sell-off wave finally comes around. From a technical perspective, the S&P 500 Index has support around 1,525 along with resistance near the 1,570 mark.

Below, we have highlighted three 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 GREK

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Disclosure: No positions at time of writing.