ETF Week Ahead Preview: Proving Them Right...Or Wrong

Despite a gloomy September jobs report, the bad news is good news mantra was back in play last Friday as all three major U.S. indexes finished the day with gains well in excess of one percent. However, traders and investors still face ample indecision with which to contend in the coming week.

Now that the fourth quarter has started, market participants can start bracing for third-quarter earnings reports. In the week ahead, there are a just a few marquee names report, but one earnings-related play from the world of exchange traded fund to be mindful of is the Consumer Discretionary Select SPDR XLY because several of the companies stepping into the earnings confessional this week hail from the discretionary sector.

“Overall, corporate earnings are expected to fall by 4.1 percent, according to Thomson Reuters data. That figure is skewed, however, by an expected 65 percent fall in energy sector results,” Reuters reports. 

Last week's top asset-gathering ETFs shed little light on what traders are feeling about the Federal Reserve's plans for interest rates. The fact that the rate-sensitive Consumer Staples Select Sector SPDR XLP and the even more rate-sensitive Utilities Select Sector SPDR XLU were among last week's top 10 asset gatherers, indicates some traders are expecting the Fed to keep rates where they are.

On the other hand, the fact that the cyclical Industrial Select Sector SPDR XLI also made an appearance in the top 10 could be a sign that some money managers are bracing for Fed liftoff. Either that or some professionals are seeing opportunity with industrials, one of this year's worst-performing sectors. 

For the ultimate contrarian, there is opportunity afoot with emerging markets ETFs, but know that is a statement, not an endorsement. Last week, 15 of the top 20 non-leveraged ETFs were emerging markets ETFs, a group that includes the beaten up iShares MSCI Brazil Capped ETF EWZ and several China ETFs. 

Emerging markets are the ultimate contrarian trade right now because investors cannot get away from developing world stocks fast enough. Third-quarter outflows from developing world stocks were the first since 2009 and the worst since 2008. The Vanguard FTSE Emerging Markets ETF VWO and the iShares MSCI Emerging Markets ETF EEM, the two largest emerging markets ETFs by assets, lost over $6.5 billion last quarter.

Speaking of contrarian ideas, the Market Vectors Gold Miners ETF GDX certainly belongs in that conversation. The disappointing jobs report elicited a rally in gold, which was a boon for GDX as the largest gold miners ETF surged over eight percent.

This paints the picture of how much GDX and rival gold miners ETFs have struggled this year: Even with last Friday's eight percent surge, one accrued on volume that was nearly 80 percent above average, still leaves GDX down 21.1 percent year-to-date. The good news is last week's surge lifted GDX above its 20- and 50-day moving averages.

Commodities exchange traded products have been thrashed this year, but of the fewer than 30 ETFs that have posted double-digit gains over the past month, 10 are commodities ETFs or ETNs. That group includes, the ETFS Physical Palladium Shares PALL.

PALL has been the prime beneficiary of scandal-plagued Volkswagen AG's VLKAY woes. However, PALL's 19.5 percent one-month gain could make the ETF ripe for some near-term profit-taking.