ETF Insider: No Real Fuel Behind The Fire

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Optimism appears to be the only catalyst behind the ongoing run-up on Wall Street for the last few weeks as policymakers have yet to agree upon a clear-cut deal for averting the “fiscal cliff”. Hope continues to fuel buying on the equity front, although caution should be exercised as any pessimistic headlines can easily derail the whole market given its shaky footing. The latest round of confidence comes from House Speaker Boehner who reportedly told President Obama that the Republicans may accept higher taxes for the wealthy if Democrats budge on the issue of reduced Medicare and Social Security spending [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 Homebuilders ETF (XHB, A+):  Domestic homebuilders will come into the spotlight on Wednesday morning as investors digest the latest housing starts data, hoping to find further evidence of recovery in the battered housing market. Analysts are expecting for this figure to come in at 865,000 versus the previous reading of 894,000. 
  • Russell 3000 ETF (IWV, A):  With all eyes on the “fiscal cliff”, the U.S. GDP report slated to come out on Thursday should offer some valuable insights to investors and policymakers alike. Analysts are expecting for the latest economic growth reading to come in at 2.9%, marking a slight improvement from the previous figure of 2.7%.
  • MSCI United Kingdom Index Fund (EWU, A):  With U.K. GDP data slated to come out on Friday morning, EWU may experience volatile trading at the opening bell. Analysts are expecting for Great Britain’s economy to post quarterly growth of 1%, unchanged from the previous reading. 
  • IQ Canada Small Cap (CNDA, C+):  Canada’s GDP report is also slated to come out Friday morning which could sway CNDA in either direction depending on investors’ reaction to the latest economic growth data. Analysts are expecting for Canada’s GDP to have expanded by 1.2%, a slight improvement over the previous reading of 1.0%. 

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The S&P 500 Index remains in an uptrend from a technical perspective as this benchmark has posted higher-highs and higher-lows since bottoming out in mid-November following the post-election sell off. What’s concerning is that positive price action has been fueled entirely by hope that the “fiscal cliff” will be averted, which raises two concerns; first, markets may be in for a steep sell off with fresh lows if politicians fail to strike a deal by the deadline. Furthermore, if a resolution is announced, there is the possibility that markets won’t rally that much seeing as how many are already pricing in that Congress will steer us clear of the “fiscal cliff”. 

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 VNQ
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Disclosure: No positions at time of writing.

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