No news from China on interest rates, but Ireland accepts a bailout to avoid default on sovereign debt. As we discussed in Friday’s update, the rumors were swirling about China hiking rates over the weekend. That didn’t happen, but the rumor/speculation is alive and well. The $164 billion bailout of Ireland did take place over the weekend setting a calmer tone in Europe. The result is less pressure as the euro rises back above $1.37. Of course once one problem is addressed the attention of the media and analysts shifts to other potential issue in Spain and Portugal. No rest for the weary!
As we discussed last week the wall of worries are back. The focus has shifted to events and news which invites emotions into the markets. When emotions rise the volatility factor of the markets rise. Last week the VIX index spiked up to 23, but by weekend had managed to move back to the recent low of 18. It is a great example of how the uncertainty of direction is impacting investors psyche towards the risk of the markets.
That said here are some sectors to watch this week:
Retail – XRT, the SPDR S&P Retail ETF, broke to a new high closing at $46. The sector has been one of the key leaders on the move off the August low. Earnings have been the driver near term with solid third quarter data, and most importantly, forward guidance has been positive. The chart below shows the move higher and outlook is optimistic for the fourth quarter.
(Click charts to enlarge)
Energy – IEZ, iShares DJ US Oil Equipment & Services ETF. moved to a new 52 week high breaking above $50. The energy sector has been a leader on the bounce off the August low. The break higher was tested last week as the broad market dropped on worries in Europe and China. As you can see on the chart below the rebound from the test was solid. If the global picture continues to improve the energy sector should remain in a leadership role.
Technology – SOXX, iShares Semiconductor ETF, moved to the April high and retraced back to support at $50.70. Earnings last week from Marvell (NASDAQ:MRVL) and Nvidia (NASDAQ:NVDA) gave the needed boost to bounce off support. If technology is going to return to its leadership role for the broad markets, semiconductors will be an important element in the sector. Internet FDN has been another key to the sectors push higher and worth watching as well.
Europe – The positive news relative to the bailout of Ireland helps the markets in Europe. IEV, iShares S&P Europe 350 ETF, is on our watch list this week. The test on the downside last week leaves some room for a move back to the high near $41.50. The risk has been abated, but isn’t gone. Proceed with caution and understand the news surrounding the continent.
This should be a slow week, but with all the news and worries swirling around the globe it could get interesting. If you are taking the week off set your stops before you leave. If it is business as usual, don’t over think this market environment. Play follow the leaders and protect against the downside risk. This is not a stable market environment. We raised plenty of cash last week and we are in good shape heading into the final six weeks of the year. Remain focused and disciplined with your money.
Disclosure: No positions
Disclaimer: Jim Farrish is the Founder and Editor of SectorExchange.com and TheETFexchange.com as well as the CEO of Money Strategies, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.