There are many macroeconomic risks on the horizon from North Korea’s volatility, to an uncertain French election, and a potential government shutdown in the United States. While the S&P 500 may have soared more than 1% on Monday following better-than-expected French election results on Sunday, there are many real risks remaining that traders should carefully watch, as potential opportunities may arise in some areas of the market.
The North Korean crisis could have an impact on defense stocks, including those in popular exchange-traded funds like the iShares Dow Jones US Aerospace & Defense ETF (ITA), which is already trading about 10% higher so far this year. Meanwhile, the election of Marine Le Penn could have a negative impact on the Guggenheim CurrencyShares Euro Trust (FXE), which tracks the value of the euro versus a basket of international currencies.
On a more macro level, the SPDR Gold Trust (GLD) offers investors exposure to gold prices that tend to move in the opposite direction as stocks. ETF Replay estimates that the SPDR Gold Trust has a -0.18 correlation with the SPDR S&P 500 (SPY), which suggests that it tends to increase in price when the overall stock market falls. This could make it an attractive play if macroeconomic risks rise.
On a technical level, this ETF is trading near the upper end of its price channel after nearly reaching R2 resistance at $123.67. Traders should watch for a rebound from R1 resistance at $121.19 or the 200-day moving average at $119.85 and a potential breakout from R2 resistance levels. The next major support lies at around the pivot point and lower trend line support at $117.61 near the bottom of the price channel.
Traders may want to keep an eye on the several macroeconomic risks that could impact the market over the near-term. In particular, traders may want to take a look at event-specific opportunities in ITA or FXE as well as broader plays in GLD and potentially VIX-related ETFs like the iPath S&P VIX Short Term Futures ETN (VXX).
Charts courtesy of StockCharts.com. Author holds no positions in stocks mentioned except through passively managed funds.