ETF Outlook for the Week of October 14, 2013

Government Shutdown Continues

The market rallied to end the week on hopes of an imminent deal. As of Sunday morning there was no deal struck yet and it appears the government shutdown may continue into the new week. There is no doubt the shutdown has an affect on the stock market. When the news is positive the money flows into stocks. When the headlines point to the shutdown dragging on it sends investors to the sidelines

An ETN that gauges fear in the market is the iPath S&P 500 VIX Short-Term Futures ETN VXX. The ETN fell 14 percent the last three days of the week, suggesting a deal was in the books to raise the debt ceiling. Unfortunately for the market and all Americans, the bozos in D.C. have yet to agree on a deal and with stocks set to open lower on Monday morning expect VXX to be higher.

Charting the S&P 500

The best day of the year for the markets last Thursday was enough to help the S&P 500 close out the week with a gain of 0.75 percent. This after the index fell by over 2 percent to begin the week. With the index sitting at the best close since 9/20 it would appear to be ready to retest the all-time high set last month. Well, investors better hold their horses; the lack of a deal in D.C. this weekend has the futures trading lower on Sunday night by nearly 1 percent.

The chart of the S&P 500 over the last six months shows a very distinct pattern. The parallel black lines that encompass the chart are the upper and lower lines for the uptrend channel the index has been trading within. Last week the index came down and tested the support before rallying. If the trend continues the next target for the S&P 500 will be the 1760-1770 area, a new all-time high.

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Ireland Bailout

Ireland is prepared to become the first country in the Eurozone to exit their bailout program on December 15. This is not a major surprise as the country as been moving in the right direction for the last few years. However, the actual announcement shows how far Ireland has come since the bailout occurred. The iShares MSCI Ireland Capped ETF EIRL is up 32 percent in 2013 and is trading near its best level since it began trading in May 2010.

Earnings Season in Full Swing

A swath of earnings from companies will be hitting the wires this week and along with the situation in D.C., they will be the biggest driver of the market. The financial stocks kicked things off last week and more will be reporting in the next few days, led by Bank of America BAC. The SDPR Financial ETF XLF has been moving in lockstep with the overall market and will likely be the driver of next potential breakout. If the financials disappoint, expect it to hold the market back and take center stage.

ETF of the Week – EUFN

Investing in Europe remains very risky in the minds of most investors. Narrow it down to the financial stocks in the region and the perceived risk increases dramatically. This misconception of the European financials has investors missing out on a big opportunity. The iShares MSCI Europe Financials EUFN is having a solid year, up 20 percent. But, there could be much more on the upside as long as the global economy continues to improve.

The ETF is heavily invested in the U.K., France, Switzerland, Spain, and Germany. The largest holding is HSBC Holdings HBC, a U.K.-based bank that makes up 11 percent of the ETF. The thesis behind owning EUFN is that the banking system in Europe will continue to improve and that the low valuation versus their U.S. peers will come back inline. The ETF was up 2 percent last week and closed at the best level since May 2013. Support is at $22.75 and near-term resistance is $25.12.

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