Stocks Brace For Rate Decisions

by on March 4, 2013 | ETFs Mentioned:

Last week gave the bulls a scare as profit taking pressures swiftly knocked down major indexes at the start of the week, however, buyers poured in and helped the market regain its footing by the closing bell on Friday. After failing to post fresh highs last week and enduring volatile trading, U.S. equity indexes could face stiff headwinds this week ahead of resistance levels as investors digest several central bank interest rate decisions from around the globe [see also How To Hedge With 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:

  • IQ Australia Small Cap ETF (KROO, C): Australian equities could see a volatile open Tuesday morning as investors react to the overnight Reserve Bank of Australia rate decision. Analysts are expecting for the rate to remain unchanged at 3.00%, although economic commentary issued after the report could offer additional insights.
  • Canada Bond Index Fund (CAD, B): The rate decisions will continue with the Bank of Canada on Wednesday morning which is expected to hold interest levels steady. CAD could be in for a volatile session as investors look to move in and out of safe havens depending on the latest economic outlook issued by the bank.
  • MAXIS Nikkei 225 Index ETF (NKY, B-): Japanese equities will come into focus Thursday morning as investors react to the overnight Bank of Japan rate interest rate decision. Analysts are expecting to hold rates steady at 0.10%, however, policymakers may inpsire choppy trading given the yens’ volatile performance in the currency market.
  • CurrencyShares Euro Currency Trust (FXE, A): The European Central Bank rate decision is slated to take place Thursday morning before Wall Street’s opening bell, which could cause FXE to gap in either direction depending on investors’ reaction in the currency market. Analysts are expecting for policymakers to raise rates from 0.75% to 0.8%.

It was encouraging to see bargain buyers step in the days immediately following last week’s sell-off. What’s concerning however is the fact that the S&P 500 Index has been grinding along a resistance level, leading some to believe that the long-awaited “top” is finally starting to form. This benchmark hit a five-year high of 1,530 on 2/19/2013, and since then, it has failed on two occasions to hurdle back over the 1,525 level. From a technical perspective, the longer-term uptrend is by all means fully intact, however, we advise setting tight stop losses for those entering at current levels in case of an unexpected pullback.

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 ILF

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Disclosure: No positions at time of writing.