ETF Insider: Bears At The Gates

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Buying pressures were alive and kicking last week as upbeat earnings results and encouraging employment data on the home front kept confidence levels afloat. The coveted S&P 500 Index managed to settle past the psychologically significant 1,500 level last week, while the grandfather of the ETF industry, SPY, celebrated its 20th birthday [see S&P 500 Visual History].

This week should see an uptick in trading activity as several key economic reports are expected to hit the street in addition to earnings season continuing full steam ahead. With major equity benchmarks sitting on hefty gains, caution is advised as any pessimistic headlines are sure to welcome profit taking pressures on Wall Street.

Weekly Outlook

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

  • S&P 500 ETF (VOO, A+):  U.S. equity markets will likely take cues from the latest GDP report on Wednesday morning, with the well-known VOO coming under the spotlight for many. Analysts are expecting for annualized domestic economic growth to come in at 1.0% versus the previous reading of 3.1%.
  • SPDR Gold Trust (GLD, A):   Gold may be in for a volatile trading session this Wednesday afternoon as investors react to the latest interest rate decision from the Federal Reserve. Analysts are expecting for the rate to remain unchanged at 0.25%, although economic commentary issued after the rate decision itself generally offers more valuable insights.
  • Market Vectors Retail ETF (RTH, A):  Domestic consumer stocks, and retailers in particular, will come into the spotlight this Thursday as investors digest personal income and spending data. Analysts are expecting for personal income to come in at 0.9% versus last month’s reading of 0.6%, while consumer spending is expected to have increased by 0.2% versus last month’s rate of 0.4%.
  • NASDAQ Global Auto Index Fund (CARZ, C+):  Auto stocks could steal the headlines on Friday as investors react to January’s motor vehicle sales report. Analysts are forecasting a slight drop-off in this figure, with sales expected to come in at 15.2 million versus the previous reading of 15.3 million.

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The S&P 500 Index is continuing its 5-year bull run and buyers have stepped in after every pullback since the start of 2013. While bullish price action has been undeniably resilient, we are hesitant to jump “all in” at current levels given the high probability of a near-term correction; the volatility index continues to hover underneath the 14 level, which suggests that investors might be growing “too confident”, in which case selling pressures can swiftly swoop in at the first sign of uncertainty on Wall Street or anywhere else around the globe. From a technical perspective, the S&P 500 Index has immediate support around 1,460 followed by the 1,400 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: Short EEM

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Disclosure: No positions at time of writing.

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