5 ETFs to own this week

Earnings will need to impress investors to keep stocks moving higher.

By Jamie Dlugosch Jul 11, 2011 10:06AM

A weaker-than-expected jobs report Friday took some of the steam out of the pre-earnings rally, but the market rebounded at the close, limiting the damage. The market finished the week with a small gain.

 

Earlier in the weak, economic data supported bigger gains as the market waited for corporate profits to roll in. Investors won't have to wait much longer, as earnings season begins in earnest this week with a report from Alcoa (AA) after the close of trading Monday.

 

After Alcoa (AA), a whole host of companies are set to report results. The big-name report this week comes from Google (GOOG). The technology bellwether will give us a read on the overall health of the economy.

 

I expect a strong report. ETF buyers should keep the pedal to the metal this week with the iShares S&P North America Technology and Multimedia Fund (IGN).

 

Although I recommend investors be aggressive heading into earnings season, there are risks. The debate in Washington, D.C., with respect to raising the debt limit could distract market participants. To the extent the issue is pushed to the brink, severe selling may ensue.

 

Of course, the flip side is true as well. If there is broad consensus and agreement, stocks could rally. There is not much you can do when such an overhang exists. I simply make you aware of it so that if something does occur you won't overreact.

 

Keep a steady hand on the long side this week and you will likely be rewarded. Here are the five ETFs to own this week:

 

iShares Russell 2000 (IWM) – Small-cap stocks had a nice week gaining more than 1%. That was much higher than the overall market and demonstrates underlying strength in the current rally. Look for that rally to continue this week as earnings season begins.

 

iShares S&P North America Technology and Multimedia Fund (IGN) – With Google releasing earnings investors will get an early read on the technology sector. Last week the IGN slipped a bit, but I would view the loss as profit taking. The two weeks prior produced very big gains. To give some back is only normal and the give back last week was minimal. Look for the up trend to continue thanks to a strong report from Google.

 

SPDR Dow Jones Industrial Average (DIA) – Dow stocks were up an impressive .8% last week beating the S&P 500 by 50 basis points. The strength in the Dow occurred despite a rally in the dollar. The sinking dollar had been contributing to profits earned overseas. As most Dow stocks are multinational companies the falling dollar helped push valuations higher. Making money with the dollar strengthening is another sign of underlying strength in the recent bullish move.

SPDR S&P Homebuilders (XHB) – The XHB put in a lackluster performance last week with a fractional loss. Investors still question the recovery in housing. Mixed signals include poor sentiment and rising permit requests. Valuations in the group have moderated hence my recommendation here. Stick with the XHB as earnings season heats up.

 

SPDR S&P 500 (SPY) – Slow and steady wins the race. The market should gain 10-13% this year. With the year half gone we are only half way to my expectation for the S&P 500. Stick to the SPY for steady gains.

 

Keep an equal weight in the five picks above to continue that trend.

Tags: etf
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