ETF Insider: Sequester Looms

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Equity markets got a long-overdue whiff of profit taking pressures last week after mixed commentary from the Fed managed to welcome back the bears, although the selling party was very short lived on Wall Street. Bargain buyers were quick to return last Friday and even stick around through this morning as the ongoing rally continues to welcome new investors at virtually every pullback. This week is stacked with major economic data releases, including several GDP reports from around the globe as well as U.S. consumer confidence and spending data [see also How To Take Profits And Cut Losses When Trading 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:

  • Dow Jones U.S. Home Construction Index Fund (ITB, A-): This sector ETF could see an uptick in trading activity as it attempts to recover from last week’s sell-off on Tuesday morning when new home sales data hits the street. Analysts are expecting for this figure to come in at 384,000 versus last month’s 369,000.
  • MSCI United Kingdom Index Fund (EWU, A):  British equity markets will likely take cues from the latest GDP report due out on Wednesday morning. Analysts are expecting for U.K. economic growth to come in at -0.3% for the quarter.
  • Industrial Select Sector SPDR (XLI, A+):  U.S. industrial stocks may experience volatile trading on Thursday as markets digest the latest GDP revision. Analysts are expecting for U.S. economic growth to come in at 0.5% versus the previous reading of -0.1%.
  • IQ Canada Small Cap ETF (CNDA, C+):  Canadian securities will likely take cues from the latest GDP report on Friday morning. Analysts are expecting for Canada’s economic growth rate to come in at 0.7%, marking a slight improvement over last quarters’ reading of 0.6%.

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Volatility

Despite last week’s steep two day sell-off, from a technical perspective, the ongoing uptrend on Wall Street remains fully in-tact. The S&P 500 Index was able to rebound off the 1,500 level without much hesitation which was encouraging to see; however, this near-term rally could be a fake out and traders need to keep an eye on this index as it looks to settle past its recent resistance level around the 1,530 mark. In terms of downside, a break below 1,500 would welcome accelerating selling pressures as key stop-loss levels are triggered and many are forced to automatically liquidate their long positions. We are sticking to our conservative strategy of buying on the dips with very tight stop-losses in case the much-awaited correction finally hits.

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 ECH

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Disclosure: No positions at time of writing.

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