ETF Insider: Fiscal Cliff Woes Simmer On Tax Talks

ETF Database

Stocks kicked off the week with an early pop as Treasury Secretary Geithner’s prediction that Republicans would budge on the issue of higher tax rates for the wealthiest of Americans inspired confidence that the much-feared “fiscal cliff” could be avoided. Clouds of uncertainty continue to loom over the global manufacturing sector as mixed data took center stage Monday morning; China’s manufacturing activity is once again showing signs of expansion, while the most recent domestic ISM figure missed analysts estimates [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:

  • CurrencyShares Australian Dollar Trust (FXA, A):  This Aussie dollar ETF may gap tomorrow morning as investors digest the overnight Reserve Bank of Australian interest rate decision. Analysts are expecting for the benchmark rate to drop from 3.25% to 3.0%, while the economic commentary issued after the decision itself should offer further insights.
  • IQ Canada Small Cap ETF (CNDA, C+):  Equity markets to the north of Wall Street may be in for a volatile trading session on Tuesday depending on the latest commentary and interest rate decision issued by the Bank of Canada. Analysts are expecting for the rate to remain at 1.0%, although any hints of future policy changes could bolster CNDA in either direction for the day. 
  • CurrencyShares Euro Currency Trust (FXE, B):  Investors will focus their attention onto the debt burdened currency bloc on Thursday morning as the European Central Bank rate decision takes place. Analysts are expecting for the rate to remain at 0.75%, however, commentary regarding future aid efforts for struggling member nations may inspire volatile trading across the Atlantic ocean. 
  • S&P 500 VIX Short-Term Futures ETN (VXX, B+):  U.S. equity markets could be in for a tumultuous trading session this Friday as domestic employment data hits the street. Analysts are expecting for the nonfarm payrolls figure to come in at 80,000 versus the previous reading of 171,000, while the unemployment rate is expected to remain at 7.9%. 

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Volatility

Major equity indexes showcased their resilience last week as growing confidence over the looming “fiscal cliff” resolution pushed the Dow Jones Industrial Average and Nasdaq above their respective 200-day moving average. The S&P 500 Index continued its ascent  settling above 1,400 while gold prices drifted sideways with a downward bias, further showcasing the fact that investors are increasing their risk appetite. 

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 HYG
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Disclosure: No positions at time of writing.

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