Market Overview

Part I: Must Know ETFs For Q3 Earnings

Some may argue that it should already be priced into the market, but the fact is analysts expect earnings from S&P 500 constituents to have declined 2.3 percent during the third quarter from a year earlier. With earnings reports from Alcoa (NYSE: AA) and Yum Brands (NYSE: YUM) coming Tuesday afternoon, and the possibility of more profit warnings looming, investors have reasons to be jittery.

In another cautionary tale, recent market weakness, albeit slight, is visible across multiple sectors. That implies investors may have precious few sectors with which to find shelter from a potential market storm. And that means there are plenty of ETFs that will be under scrutiny as earnings season rolls along. Keep a watchful eye on the following funds:

Direxion Daily Financial Bull 3X Shares (NYSE: FAS) Triple-leveraged ETFs are not everyone's cup of tea. Nor should these funds be, but FAS is instructive on multiple levels. Bank stocks have enjoyed excellent runs this year, but the group's marquee names still reside below pre-crisis highs.

That could mean more upside lies ahead for long-term investors, but in the near-term, FAS and its bearish cousin, the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ), will be tells regarding how much risk investors are willing to take on with financials. J.P. Morgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) get the party started later this week.

If FAS falls below support at $110, FAZ could make a run to its 50-day moving average and take out psychological resistance at $20.

Market Vectors Semiconductor ETF (NYSE: SMH) September is usually the rough month for semiconductor stocks. That it was, but October is not going much better. Intel (NASDAQ: INTC) touched a new 52-week earlier today. Texas Instruments (NASDAQ: TXN) is within earshot of a new low. Those two combine for almost 27 percent of SMH's weight. Intel alone is almost 20.6 percent of SMH's weight on its own.

A bad report from the world's largest semiconductor maker is bad news for SMH. The ETF must hold support at $30 or risk further downside.

Health Care Select SPDR (NYSE: XLV) Abbott Labs (NYSE: ABT), Eli Lilly (NYSE: LLY), Merck (NYSE: MRK) and Pfizer (NYSE: PFE) share something in common. All are sitting at or quite close to new 52-week highs. Those four names combine for about 30 percent of XLV's weight.

There is something else to note about XLV. The ETF trades about 14 times the expected earnings of its 54 components. That is barely more expensive the SPDR S&P 500 (NYSE: SPY) and a decent bit cheaper than the Consumer Staples Select Sector SPDR (NYSE: XLP).

The near-term risks to XLV include traders viewing pharmaceuticals names as overbought or investors punishing Johnson & Johnson (NYSE: JNJ) in the wake of Goldman Sachs lowering its rating on the stock to Sell.

For more on ETFs, click here.

Posted-In: Long Ideas News Sector ETFs Bonds Broad U.S. Equity ETFs Guidance Short Ideas Specialty ETFs Best of Benzinga

 

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