by John Nyaradi
ETF Investors look to Jackson Hole and Dr. Bernanke's speech on Friday and Mario Draghi on Saturday
Global stock and ETF investors have run equities markets up to near yearly highs on the hopes for more quantitative easing from Dr. Bernanke and the Federal Reserve. ETF investors are also looking to European Central Bank President Mario Draghi to step up and buy bonds to save Italy and Spain from high borrowing costs while the debt crisis in Greece continues to percolate.
The coming week will be pivotal for the future direction of major U.S. stock indexes and their related ETFs.
On My ETF Radar
Looking for clues to the future direction of stocks and ETFs, the S&P 500 (NYSEARCA:SPY) is instructive:
chart courtesy of StockCharts.com
In the chart of the S&P 500 above we see that the index is in bull market configuration but stalled at near yearly highs with the red horizontal resistance line at 1420 marking the last level of short term resistance. The point and figure target for the S&P 500 and its related ETF is 1550 on the index and $190 on S&P 500 SPDR ETF SPY. This represents a targeted gain of 9% on the index and 35% on the ETF.
chart courtesy of StockCharts.com
Both the S&P 500 index and the S&P 500 ETF have registered recent breakouts and are well above their blue bullish support lines which represents significant support and the demarcation line between bull and bear markets.
The S&P 500 SPY configuration is confirmed by the other major U.S. stock indexes and their ETFs. The Dow Jones Industrial Average and its ETF, Dow Diamonds (NYSEARCA:DIA) is at $131, 20% below its target price of $158. The Russell 2000 and the iShares Russell 2000 ETF (NYSEARCA:IWM) is 16% below its target price of $93. The Nasdaq 100 Index and the PowerShares QQQ Trust ETF (NYSEARCA:QQQ) is 10% below its target price of $75.
On a technical basis, major U.S. stock indexes and their ETFs are in confirmed buy signals, in bull market configurations, but at major resistance levels.
View From The Summit
Last week's market action was largely dominated by the "will they or won't they" questions surrounding future action by the Federal Reserve in regard to quantitative easing. Economic reports saw U.S. durable goods orders rising 4.2%, gains in existing and new home sales, an unexpected rise in weekly unemployment and dovish comments from the FOMC meeting minutes in which the Fed was actively discussing more quantitative easing.
Improving economic data points conflicted with the Fed minutes and uncertainty over Europe to stimulate the "what will the Fed do" guessing game. On Friday, Dr. Bernanke said in a letter to a Congressional committee, that, "There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery."
Friday's rally was largely attributed to Dr Bernanke's comments.
In U.S. markets, the Dow Jones Industrial Average and the SPDR Dow Jones Industrial ETF DIA gained 0.8% for the day but was down 0.7% on the week. The S&P 500 and its ETF, SPDR S&P 500 ETF added 0.7% on Friday and was down 0.5% for the week.The Nasdaq 100 and its ETF, PowerShares QQQ ETF Trust gained 0.6% on Friday and was fractionally lower for the week.
Last week also brought a heavy round of action in Europe as Greek Prime Minister huddled with Germany's Angela Merkel and France's President Francoise Hollande. Merkel said she wants Greece to stay in the European Union but expects the country to live up to previous commitments.
So now the global financial markets turn to Jackson Hole, the tony resort town in the Tetons which is host to this week's Federal Reserve conclave. Headline speakers will be Dr. Bernanke on Friday and Mario Draghi on Saturday and both speeches will be sliced and diced for clues as to how the two powerful central bankers plan to proceed. Markets are clamoring for more quantitative easing on the part of the Fed and bond buying by the ECB to prop up Italy and Spain and get a handle on the ongoing European debt crisis.
The real question that will eventually seal the fate of Europe will be the actions taken or not taken by Mario Draghi and the European Central Bank. The bank has a pivotal meeting on September 6th and the German Constitutional Court decides the constitutionality of the European Stability Mechanism on September 12th. Possible actions are bond buying and setting bond yield targets for European bonds.
The Eurodollar (NYSEARCA:FXE) has been advancing in recent days on hopes for action by Draghi and his ECB and the currency put in its best week since February with CurrencyShares Euro Trust ETF FXE advancing 1.4% for the week.
Upcoming economic reports this week include Case/Shiller home prices and consumer confidence on Monday, 2Q GDP revision, pending home sales and Fed Beige Book on Wednesday, weekly unemployment, consumer spending and income on Thursday, and Friday brings the big headline news with Chicago PMI, University of Michigan consumer confidence, factory orders and Dr. Bernanke's speech tentatively scheduled for 10:00 a.m. Eastern time.
Bottom line: A pivotal week lies ahead with significant economic reports and policy statements coming on Friday and Saturday. Markets are poised to move higher but the potential for disappointment is high. On thin summer volume and ahead of the long Labor Day weekend, Friday will be an important day for global ETF and stock market investors.
Disclaimer: Wall Street Sector Selector actively trades a wide range of exchange traded funds and positions may change at any time.