NEW YORK (TheStreet) -- The earnings reports of a few key companies will be pivotal for the transportation and retail ETFs this week, while gold ETF investors will be closely following the movement of the euro.
One of the better performing sectors this year has been consumer discretionary, as the stocks in this group rallied in the face of widespread negativity surrounding retail and consumer stocks.
One of the better performing consumer discretionary subsectors has been shoes, with
advancing more than 10% this year, a lagging performance next to some of its competitors. Nike reports earnings this week, with analysts looking for $1.05 per share in earnings.
Also reporting this week is a company in a completely different line of business,
. Analysts expect the company earned 29 cents in the previous quarter.
These two firms combine for just over 4% of assets in XLY, so they're unlikely to move this fund by themselves. However, investors will be watching for an update on the health of the American consumer.
CurrencyShares Euro Trust
European country ETFs were some of the best performing ETFs last week as shares bounced on the strength of the euro, which has finally put together a nice rally after falling for most of 2010. I recently bought FXE and
iShares MSCI EMU Index
(EZU) in my
to play this rebound.
Attention is turning to Spain's debt though, as the country needs to borrow a large sum over the course of the next few weeks. The rally has occurred because those debt auctions have been successful thus far, but while successful auctions allow the market to move slowly higher, any failure will be swift and brutal.
SPDR S&P Homebuilders
May's bad housing data knocked the housing sector for a loss last week. This week,
Bed Bath & Beyond
report earnings; the former two firms each account for about 4% of the fund, with KBH accounting for about 3%. Analysts expect 48 cents from BBBY, 0 cents from LEN and a loss of 31 cents from KBH.
came out last week and said deposits for new homes were down 20%, but that they expected consumer confidence to buoy the market. Therefore, the consumer discretionary sector is also likely to have some impact on the homebuilders this week.
Expect volatility from this sector as investors try to figure out if May was a blip or the start of another downtrend in homebuilding.
First Trust ISE Revere Natural Gas
In the wake of the Gulf disaster, President Obama has said the same thing as other American politicians for the past 40 years, namely that the U.S. needs to reduce oil consumption.
While alternative energy is nice for speeches, bringing to mind great achievements such as the moon landing, the reality is that splitting the atom or going to the moon were far easier for government to accomplish.
These were major projects that required massive funding and manpower, but the critical breakthroughs were made decades before. In the case of alternative energy, the two paths ahead are steady improvements in efficiency or a critical breakthrough yet to come.
What that means is that if the government is going to do something about reducing oil consumption, the main substitute will be either nuclear, natural gas or coal. Factoring in the time to build nuclear plants and the environmental opposition to coal, it seems likely that natural gas will end up a winner. The question is whether the government is actually going to do something productive, or pass another fluff bill.
The World Bank says there are signs that China's economy is slowing, but that slowdown means the current forecast is for 8.5% GDP growth in 2011, down from a forecasted 9.5% growth in 2010.
The Agricultural Bank of China is preparing to IPO in both Hong Kong and Shanghai, but the Shanghai A-share market has been slipping lately, having failed to rebound with the rest of the markets around the world. An index of Chinese listed companies (H-shares) in Hong Kong has done better, but it is usually correlated with the A-share market.
The perceived success or failure of this IPO, coming in July, could end up having a large impact on these markets in the short run and it will likely dominate market news coverage over the next couple of weeks.
Market Vectors: Gold Miners
Gold hit a new all-time high on Friday, but GDX remains about 5% below its all-time high set in March 2008. Gold is up more than 20% since then, which means the miners could rally quite a bit before they catch-up to the rally in gold. However, miners have some fixed costs, and their variable costs, such as energy and labor, have been holding steady in the absence of inflation. Therefore, the rise in gold means the profits of many miners will increase much more than 20% -- and that in turn could fuel an even larger rally.
A lot of technical traders look for breakout signals, and the fact that GDX has stayed below its all-time high has been a bearish omen. In December, when gold first crossed $1200 an ounce, GDX failed to breach its all-time high, peaking at $54.65 before falling more than 25%.
The valuations here become more and more compelling, however, and eventually a breakout will occur. Given the volatile nature of GDX and
Market Vectors Junior Gold Miners
, we are close enough that this week could be the week.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management was long Market Vectors: Gold Miners, CurrencyShares Euro Trust and iShares MSCI EMU Index.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.