S&P 500 Pumps Breaks Ahead Of Major Resistance

by on January 7, 2013 | ETFs Mentioned:

Bullish price action has persisted for much longer on Wall Street than many had anticipated; following the massive gap higher at the start of the new year, major equity indexes have held onto gains amid the looming uncertainties, perhaps hinting at the possibility for new highs in the coming weeks. What’s truly noteworthy is the fact that stocks remained resilient even after last week’s Fed minutes, during which policymakers noted that the ongoing bond-repurchase program may be coming to an end in 2013 [see Free 7 Simple & Cheap All-ETF 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:

  • SPDR S&P China ETF (GXC, A+): With all eyes on China’s manufacturing sector, the nation’s upcoming CPI report should offer valuable insights into just how hot growth really is overseas. GXC could see volatile trading on Thursday morning as investors react to the overnight inflation report; analysts are expecting for China CPI to come in at 2%.
  • MSCI United Kingdom Index Fund (EWU, A-): British equity markets will come into the spotlight on Thursday morning as markets digest commentary from the latest Bank of England interest rate decision; analysts are expecting for rates to hold steady at 0.50%, although any hints of a policy change could lead to volatile trading on the stock front.
  • European ETF (VGK, A): The European Central Bank is slated to announce its rate decision less than one hour after the Bank of England, which could lead to further volatility across overseas markets ahead of Wall Street’s opening bell. Analysts are expecting for the rate to remain at 0.75%, however, the economic outlook issued after the decision itself should offer further insights.
  • SPDR Gold Trust (GLD, A-): The yellow metal could encounter headwinds on Thursday if policymakers from the European Central Bank make no mention of further stimulus measures; gold has enjoyed a stellar run-up largely due to loose monetary policies around the globe, which is why the metal stands to loose its luster at the first sign of tightening measures.

The S&P 500 Index is demonstrating great resilience as it hovers around the 1,460 level, however, those looking to jump in at current levels should exercise extreme caution. Keep in mind that this index has historic resistance around the 1,475 level, which means that the slightest pessimistic economic development has the potential to inspire profit taking pressures given the hefty gains accumulated in just the first week of 2013. From a fundamental perspective, with no major releases taking place at home this week, the S&P 500 Index will have to deal with overseas headlines; in terms of downside, near-term support lies around the 1,440 level.

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 LQD

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Disclosure: No positions at time of writing.