5 ETFs to buy this week

Strong earnings should push stocks higher, at least in the short term.

By Jamie Dlugosch Apr 11, 2011 9:38AM

Stocks took a pause last week as investors waited for earnings season to begin in earnest. This week begins the period when publicly traded companies release operating performance for the previous quarter.

 

Expect the numbers to be better than Wall Street estimates. The positive results will be the fuel the market needs for the next leg higher.

 

The economy is on more solid footing. More jobs are being created, and growth for the first quarter is all but assured. In such an atmosphere, profits should be robust.

 

About the only overhang is inflation, but inflation is a lagging indicator and should have minimal impact on first-quarter numbers.

 

I want to be bullish with my 5 ETF picks this week. The one fund investors should key on is the SPDR S&P 500 (SPY).

 

I expect large-cap stocks to do well this earnings season for two reasons: Results will be better than expected, and valuations are reasonable. That combination should power the S&P 500 to multiyear highs in the coming weeks.

We have built a solid base in advance of earnings. Included in the base building was corrective selling that took the steam out of this market. Pessimism about the future is building, providing further fuel for a move higher.

 

To the extent we have a period without interruption from geopolitical or other natural disasters, things should be pretty good for investors.

 

Here are my five ETFs to buy this week:

 

ProShares Credit Suisse 130/30 (CSM) – The CSM tracked the market last week with a slight loss. I like the leverage in this fund for the upside. I also get some downside protection with the short exposure. We’ll see how the CSM performs in a week of higher moving stocks as I expect this week. I’ll wait a week or two before taking away this last little piece of insurance for a downward moving market.

 

IShares North American Technology-Multimedia Networking (IGN). – ETF traders got a bit side swiped with this position last week. If we entered the position on Monday we did so with a market that had moved higher in the early hours of trading. Thereafter stocks drifted lower causing investors in this fund to lose a bit more than the overall market last week. No worries as the losses were still minimal. This week all systems should be a go and this fund will do well. Technology stocks should lead the way during earnings season.

 

SPDR Dow Jones Industrial Average (DIA) – Dow stocks managed to eek out a gain last week. Not bad considering the overall weakness in the market. I expect the same action as stocks power forward this week. Dow stocks are priced attractively and earnings momentum should be on the upswing. The results will show the way beginning with Alcoa’s report.

 

PowerShares Dividend Achievers (PFM) – The PFM was the only other gainer in the bunch last week. It too did well as investors preferred the safety of dividend stocks. Given the uncertainty of things the PFM should continue to have support. To the extent inflation lifts interest rates on debt securities the PFM will slowly lose its attractiveness. Such a state is still a ways off. I’d keep the PFM for steady gains.

 

SPDR S&P 500 (SPY) – Rightly or wrongly investors are likely to be jazzed by the short term euphoria of earnings season. During this wonderful time of the market year we get to put other concerns behind us. If things go swimmingly investors are likely to bid up shares. It is that simple especially as we examine things here on a week by week basis. I’m replacing the short S&P 500 ETF with the long version. Stay tuned for how long we keep the position.

 

Take an equal weight in each of these positions for the next week as we enjoy the ride of earnings season.

 

Top Stocks for 2011

Tags: etf
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