ETF Insider: Buy The Dips With Caution

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Much to the bears’ frustration, buying pressures remain dominant on Wall Street as equity indexes continue to flirt with multi-year highs while every pullback has been short-lived and embraced by bargain shoppers. Political gridlock may soon resurface in the headlines as President Obama is slated to deliver his State of the Union address tomorrow night, with looming spending cuts likely to be at the center of discussion. This week will be fairly light on major economic data releases on the home front, and as such, GDP reports from Japan and the Euro zone will come under the spotlight [see also How Well Do The 5 Biggest ETFs Track Their Indexes?]. 

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 Retail ETF (XRT, A-):  Domestic consumer stocks may become the center of attention on Wednesday morning as investors digest the latest retail sales data. Analysts are expecting for the sales figure to post 0% growth versus last month’s expansion of 0.5%. 
  • CurrencyShares Japanese Yen Trust (FXY, B+):   The yen could fall prey to volatile trading in the overnight session before Thursday’s open as investors digest the latest Japan GDP report. Analysts are expecting for the nation to post economic growth of 0.1% versus the previous reading of -0.9%. 
  • European ETF (VGK, A+):  This Europe ETF may gap in either direction Thursday morning depending on the latest Euro zone GDP data. Analysts are expecting for economic growth in the currency bloc to come in better than the previous reading of 0.9%. 
  • Dow Jones U.S. Industrial Sector Index Fund (IYJ, A):  U.S. industrials may come under the spotlight on Friday morning as investors digest the latest industrial production figure. Analysts are expecting for a slight contraction in manufacturing activity, with the figure forecasted to come in at 0.2% versus last month’s reading of 0.3%. 

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Volatility

For those sitting on the sidelines, the ongoing bull-run on Wall Street has likely caused more than a few frustrations. With stocks already sitting on hefty gains for the year, many are hesitant to jump in now given the growing probability for a pullback. On the other hand, equities continue to grind higher amid criticism from the bears, leading some to believe that a major bull market is underway. As such, we anticipate for the S&P 500 Index to continue grinding higher given the undeniable uptrend at hand, while a break below the 1,500 level is sure to welcome steep profit taking pressures.  From a technical perspective, major resistance lies around the 1,550 level for this benchmark when considering its previous two peaks in mid-2000 and late 2007.  

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 GXC

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Disclosure: No positions at time of writing.

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