The S&P 500 was able to close out last week with a
one-point loss even though the government shutdown continued into
It appears investors believe the politicians will come to an
agreement sooner rather than later or they have turned their
attention to earnings season that is about to begin this week. It
is guaranteed that big earnings announcements will be released
this week, however an end to the government shutdown does not
look as promising.
Charting the S&P 500
From a technical perspective, the S&P 500 is looking
bullish heading into the new week. The index has been able to
hold above the 50-day moving average for the last few days after
a three percent pullback from the most recent all-time high. The
index closed last week at 1690, above the 50-day moving average
of 1680 and price support at 1677.
While the longer-term chart of the S&P 500 is promising,
the extremely short-term is raising red flags. When the S&P
500 futures began trading on Sunday they immediately began to
fall in value. The chart below shows the selling that occurred
and is an indication that investors are beginning to worry about
the government shutdown.
This week marks the official start of the third quarter
earnings season with Alcoa (NYSE:
) kicking things off on Tuesday after the closing bell. Over the
next few weeks a large portion of the S&P 500 components will
report earnings that will add to the volatility of the overall
stock market. The beauty of ETFs is that the diversification they
offer removes any company-specific risk, such as earnings four
times per year.
Investors that are searching for an ETF that focuses on
earnings could look at the WisdomTree Earnings 500 Index ETF
). The ETF tracks an earnings-weighted index of the largest 500
companies in the U.S. Most indices will base their holdings on
market capitalization, but with EPS it puts a larger importance
on past earnings. In 2013, EPS is slightly beating the return of
the S&P 500 by 60 basis points.
Even though earnings are the number one factor behind
investors putting money into the market over the long-term, this
week the driver of stocks will be Washington, DC. Until the
government shutdown is over and the debt ceiling is figured out,
the day-to-day action in stocks will be driven by the news out of
This adds another wrinkle to the investment decision of
investors and could lead to frustration and emotional decisions.
The key will be to look at the market over the long-term and
attempt to ignore the rhetoric coming out of the politicians.
A few of the ETFs that could be affected by the situation in
Washington, DC include the PowerShares DB US Dollar Index Bullish
), the SPDR Gold ETF (NYSE:
), and theiShares Dow Jones U.S. Aerospace & Defense Index
New Bull Market in Spain
A country that many investors left for dead has risen out of
the ashes and has moved into bull market territory. The iShares
MSCI Spain ETF (NYSE:
) is up 30 percent since the early July low and is trading at the
best level in nearly two years.
The Fed is not the only game in town, the European Central
Bank (ECB) has also said they will do whatever it takes to keep
to preserve the Euro. This has led to the beaten down Western
European countries leading the way in 2013.
The outperformance by EWP has been driven by its heavy
exposure to the Spanish banks. Investors that would like focus
solely on the European banks have an ETF to achieve just that.
The iShares MSCI Europe Financials ETF (NYSE:
) is up 17.6 percent in 2013 and is lagging the S&P 500,
however the upside potential is much higher. The ETF is heavily
weighted in the U.K. (33 percent) and has 10 percent in Spanish
ETF Chart of the Week - XES
With the S&P 500 trading off the 2013 high, there are
several ETFs showing relative strength and moving higher in spite
of the government shutdown. The SPDR S&P Oil & Gas
Equipment & Services ETF (NYSE:
) closed at the best level in two years on Friday.
The price of oil is well off the yearly high and the large-cap
energy stocks have underperformed. That is what makes the
relative strength of XES even more impressive. The key in the
coming weeks will be a confirmation of the breakout with several
closes above the $43.00 level.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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