5 ETFs to own this week

An impressive rally last week may just be the start of something bigger.

By Jamie Dlugosch Jul 5, 2011 10:12AM

The Fourth of July holiday came early for the stock market last week as stocks exploded to their best weekly gain in many moons.

 

Powered by solid economic numbers and optimism for the forthcoming second-quarter earnings season, bulls pushed the S&P 500 to a gain of more than 5% for the week.

 

It is amazing watching the wall of worry crumble. The bear argument for a double dip or stock market armageddon never did hold much water. The three-month pause in the market was just that, a pause.

 

Despite the big gains, many stocks trade for relatively low valuations. As long as profits come in as forecast, we can expect more gains in July. It will be a tremendous summer rally if corporate earnings beat analyst estimates.

 

I’m staying long and strong with my ETFs to buy this week. Keep an eye on the iShares S&P North America Technology and Multimedia Fund (IGN).

 

Technology is likely to be the main catalyst for gains in July, thanks to strong earnings. With valuations in the technology sector stuck in neutral a buying opportunity exists in front of earnings.

 

My favorite name to watch is Apple. Shares of the technology leader have bounced off their bottoms and may finally be poised for a run to $400. Its profit growth certainly justifies such a price. Action in Apple will be quite telling for the rest of the market.

 

Here are the five ETFs to own this week:

 

iShares Russell 2000 (IWM) – Small cap stocks added to their 2% gain the week prior with a 5% move last week. The two week move is most impressive indeed. An earnings fueled rally could lift the IWM another 5-10% in the next few weeks. I would stick with this one.

 

iShares S&P North America Technology and Multimedia Fund (IGN) – Technology was the big winner last week and IGN certainly did not disappoint. The ETF was up more than 6% for the week. I think that is just the beginning for what typically leads the market during a rally. I’m staying right here with this pick.

 

SPDR Dow Jones Industrial Average (DIA) – Large cap stocks outpaced small caps last week. The DIA gained an impressive 5.6%. I still like large cap stocks in this environment. They are undervalued and they provide downside protection in the sense that they will not fall as much as other stocks when the market is bearish. I’m not expecting a decline, but just in case I’ll ride the DIA for another week.

 

SPDR S&P Homebuilders (XHB) – The XHB performed better than the prior pick in this spot, the dividend ETF, PFM. That said it was a hollow victory as the XHB was up only 3%. That is significant underperformance as compared to the rest of the market. It did not help that key homebuilder KB Home released a weaker than expected profit report. That stock was down more than 5% after the news was released. I’ll look for a bounce back from this much maligned sector.

 

SPDR S&P 500 (SPY) – If it’s not broken, don’t fix it. Stick with the S&P 500 and rest easy. We have risk elsewhere with our other ETF selections. Remember the goal here is to generate absolute returns with these ETF picks. The five weekly selections are up more than 12% this year, more than double the rest of the market. No need to go crazy with risk. Stick to the SPY this week for steady gains.

 

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

 

I’m gearing up for earnings season. Here are 3 secrets to trading stocks set to release earnings.

Tags: etf
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