ETFs For The Week Ahead: Hoping For Some Calm

Last week was a wild one on Wall Street as stocks experienced one of the worst two-day declines in several years only to give way to a two-day rally, the likes of which had not been seen in four years.

When the closing bell sounded Friday, the exchange traded funds tracking major U.S. equity benchmarks, such as the SPDR S&P 500 SPY, finished the week higher, led by a 3.1 percent gain for the PowerShares QQQ QQQ. QQQ is the Nasdaq-100 tracking ETF.

However, last week will not be remembered as a good one for ETFs at large due to an array of pricing issues during Monday's meltdown that left some ETF investors seething because they had taken unexpected (and large) losses.

Headlines on the matter include verbiage such as “ETF minefield,” “harsh lessons for ETF investors” and “ETF flash crash.” 

This week brings a deluge of important economic data points, which should put the spotlight on plenty of well-known ETFs. From Reuters: “The economic figures will culminate in Friday’s jobs report that should reveal more about the strength of the U.S. economy.

Car sales, construction spending, the Federal Reserve's 'beige book' and jobs growth may show the economy is strong enough to withstand the first rate hike in nearly a decade from the Federal Reserve, despite worries about a hard landing for China’s economy. 

With so much U.S. economic data due out in the week ahead and speculation swirling that the Federal Reserve will not raise interest rates at its September meeting, the PowerShares DB US Dollar Index Bullish Fund UUP should be getting plenty of attention.

UUP, the U.S. Dollar Index tracking ETF, has traded lower over the past month due in large part to markets readjusting the view that the Fed is not as close to boosting borrowing costs as previously expected.

The fallout from the dollar's retreat has been predictable: Currency hedged ETFs, such as the WisdomTree Europe Hedged Equity Fund HEDJ and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF DBEF, have been met with naysayers claiming the veracity of this year's hottest ETF trade is waning.

Put simply, UUP, DBEF, HEDJ and related ETFs would love to see a surprisingly strong August jobs number that puts a September rate hike back in play. That would also be a crushing blow to dollar bears.

With construction spending data due out, obvious plays include the SPDR S&P Homebuilders ETF XHB and the PowerShares Dynamic Building & Construction Portfolio PKB, which we recently highlighted.

These ETFs were not immune to the broader market declines seen early last week, but they are in the midst of a substantial run of out-performance over broader equity benchmarks.

All these data points we have been mentioning here should have some impact on oil prices, which closed last week in style. The downtrodden 

United States Oil Fund USO surged 12.5 percent last week, but reminding investors just how bad things have been for that ETF, USO is still almost 23 percent below its 200-day moving average.

Some traders are saying last week's oil rally was no more than short-covering. If that theory proves accurate, risk-tolerant traders might want to cozy up to the ProShares UltraShort Bloomberg Crude Oil SCO in the days ahead.