U.S. Stocks Could Rise This Week

by: Yatin Karnik

U.S. stocks started the day in green, and were quickly wacked to negative before ending the day with gains. On Friday as the U.S. dollar broke down, with the Dow Jones industrial (NYSEARCA:DIA) average rose 56.68 points, or 0.46%, to end the day at 12,341.83. The S&P 500 (NYSEARCA:SPY) Index was marginally higher by 5.16 points, or 0.39%, to finish the day at 1,319.68. Nasdaq (NASDAQ:QQQ) was fractionally higher by 4.43 points, or 0.16%, to close at 2,764.65.

In the coming days traders are focused on various key reports. Monday would jump start the week with Home Builders Index. Analysts are expecting a reading of 17 for HB index. On Tuesday and Wednesday, traders await Housing Starts & Existing home sales numbers. The manufacturing sector has added 102,000 workers in the past three months, accounting for nearly 23% of all jobs created in the U.S. in the first three months of 2011. Hence consensus is 520,000 new housing starts and 5 MM existing home sales. Thursday will bring jobless claims and Philly Fed manufacturing index. Analysts expect job claims to be around 393,000. The Philadelphia Fed’s manufacturing index, however, is expected to decline in April, but mainly because it’s already so high. The Philly Fed index soared last month to its highest level since 1984.

The Labor Department reported that core inflation (price pressures after factoring out volatile food and energy inputs) rose only 0.1% in March, even as the headline inflation rose 0.5%. Many economists think the Fed is likely to let its $600 billion bond- purchase plan, intended to keep a lid on interest rates, expire at the end of June as scheduled but not start a new round of purchases. In my opinion as long as core inflation is below 1.5% on a year-on-year basis, it will be extremely difficult for Ben Bernanke to adjust monetary policy this year.

I think unless there are terrible surprise earnings from companies, the U.S. stock market will rise for the coming week. If we get a few upside surprise in earnings we might even see the stock market hitting 2011 high this week. To benefit from climb in S&P you can get long exposure to SPY or SSO (ProShares Ultra S&P). You could also benefit by getting short exposure to SDS (ProShares UltraShort S&P). In case the S&P breaks out to the upside; I have no reason to believe that Dow Jones Industrial average won't make new highs. To benefit from rise in Dow, I recommend getting long exposure to DIA or DDM (ProShares Ultra Dow). You could also double the return from rise in Dow Jones Industrial from getting short exposure to DXD (ProShares UltraShort DOW).

For more experienced traders who want to bet on specific segments within the S&P index, there is IVV (that tracks large-capitalization U.S. stock market performance), MDY (that tracks the S & P MidCap 400 index), IWM (that tracks the Russell 2000 index) and IJR (that tracks S&P SmallCap 600 index).

Disclosure: I am long SPY.