Trading Ideas For Earnings Season

by on October 8, 2012 | ETFs Mentioned:

After a positive finish last week, traders kicked off this session with profit taking as earnings jitters are undoubtedly setting in ahead of Alcoa’s performance report this Tuesday. Looming threats from Europe will continue to eat away at investors’ confidence at the first sign of trouble, although the ECB’s commitment to a low-rate policy has certainly served a major fundamental catalyst in bringing back the bulls to this region. At home, corporate earnings will take the spotlight as investors look for reassurance from the equity space that the recovery is picking up steam following Friday’s encouraging employment report [see Free Seven Simple & Cheap All-ETF Model Portfolios].

Weekly Outlook

Below, we highlight ETFs that may see an increase in trading activity as relevant market data is released and evaluated by investors:

  • Global X Aluminum ETF (ALUM): This ETF should see an increase in trading activity as earnings season kicks off with Alcoa’s quarterly results this Tuesday. Analysts are expecting for the aluminum bellwether to rake in $5.6 billion in revenues and generate earnings of 24 cents per share.
  • IndexIQ Australia Small Cap ETF (KROO): With Aussie employment data slated to hit the street Wednesday night, this ETF could be set for a volatile open the following day. Analysts are expecting for Australian unemployment to have increased to 5.3% versus the previous reading of 5.1%. 
  • WisdomTree Dreyfus Chinese Yuan Fund (CYB): The Chinese yuan will come into focus Thursday morning as investors react to the overnight new yuan loans data. Analysts are forecasting $680 billion in new loans, marking a modest contraction from the previous reading of $703.9 billion.
  • State Street SPDR S&P Retail ETF (XRT): The domestic consumer discretionary sector, and retail stocks in particular, will come into focus this Friday following the latest consumer sentiment data. Analysts are expecting for the University of Michigan confidence reading to come in at 78 versus the previous reading of 78.3. 

The S&P 500 Index continues to hold its uptrend although it is a bit concerning to see how this benchmark failed to summit the 1,474 high last week despite encouraging data on Friday. Longer-term U.S. Treasuries and the Volatility Index (VIX) are both sitting on support levels, perhaps suggesting that a bounce higher for these assets could translate into profit taking pressures on Wall Street. Look for the S&P 500 Index to close above the 1,430 mark this week, otherwise a steep correction will likely emerge  if this key technical support level is breached. 

Below, we have highlighted three fundamental trading ideas for the upcoming week. Note that most of these recommendations require active management as they are only relevant for a very short period of time. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

Actionable ETF Idea #1: Long XOP

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Disclosure: No positions at time of writing.