5 ETFs to own this week

Earnings season is coming, and underlying positives bode well for stocks.

By Jamie Dlugosch Jun 27, 2011 9:59AM

So close and yet so far, stocks got off to a nice start last week but ran into the wall of worry. By the end of the week, early gains disappeared as the S&P 500 index closed down fractionally for the period.

 

That puts us back on the losing side of the ledger after a one-week reprieve. The only positive is that technical lows on the S&P 500 index have held. A breech could trigger a complete washout turning a small correction into something quite worse.

 

In the absence of substantive news, bears are winning the speculative battle. It is far easier to be negative than positive in the current environment.

 

Thankfully, the second quarter ends this week. That means earnings season is near. My prediction is that it will be strong corporate profits that will turn things in the market.

 

The ETF to buy this week in advance of what should be a strong rally is SPDR S&P Homebuilders (XHB).

 

Homebuilding stocks have had a number of false starts since hitting rock bottom in 2009. Many hopeful buyers figure the sector is long overdue for a recovery. That early buying made the group a bit expensive, but recent selling has erased those premiums.

 

Last week, Lennar reported results that beat expectations. This week we get earnings from KB Home. The positive news pushed the XHB higher. I expect more of the same this week.

 

Here are the five ETFs to own this week:

 

iShares Russell 2000 (IWM) – Larger stocks may have been down fractionally, but smaller stocks did manage to hold gains last week. It was good timing to switch from the short side to the long side as the IWM gained more than 2% last week. When full rally mode returns, this fund should move up to 10% higher from current levels.

 

iShares S&P North America Technology and Multimedia Fund (IGN) – It was looking like a big week for tech stocks until late week selling. Even so, the IGN moved higher by nearly 3% last week. Big stocks may have been weak, but the underlying market was seeing some strength. That strength continues as the 2nd quarter winds down. The IGN could move 10% higher with a strong rally in the overall market.

 

SPDR Dow Jones Industrial Average (DIA) – With the turbo charging of the first two selection we dial it down a notch by sticking with the DIA. Dow stocks were weak last week as the fear trade gripped the market. That said, Dow stocks are relatively cheap and should do well when 2nd quarter earnings are released. If technical levels break, the Dow should lose less than the rest of the market.

 

SPDR S&P Homebuilders (XHB) – We’ll jettison the dividend ETF this week in favor of the homebuilding sector. The group rallied nicely last week thanks in part to strong earnings. Is the bottom finally here? For the stocks, recent selling has made the group attractive. The XHB should do well if stocks rally from current levels.

 

SPDR S&P 500 (SPY) – The final pick this week is the S&P 500. We have three aggressive long picks this week so this selection keeps us a bit honest. We are all in as they say on the long side increasing the risk in a portfolio of these five picks. The SPY doesn’t hurt us from a risk perspective and we are likely to lose less if stocks somehow collapse from here.

 

With half the year gone our 5 ETF’s to buy this week are outperforming the market by a wide margin. Keep an equal weight in the five picks above to continue that trend.

Tags: etf
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