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After a torturous week that took down every asset class, Wall Street will be in for a critical test in this summer. Investors will be looking for clues to determine whether the turbulence that began with the U.S. Treasury markets and spread over to commodity and equity markets will be over, or if it is the beginning of a vicious multi-correction that will bring back the scary moments of 2008-9.

It all depends on five factors:

Major Precious Metals ETFs Last Week

ETF

One-week Performance (%)

SPDR Gold Shares (NYSEARCA:GLD)

-6.3

iShares Silver Trust (NYSEARCA:SLV)

-8.3

Barclays 20+ US Treasury Bond (NYSEARCA:TLT)

-4.5

Major Equity Indexes Last Week

Index

One-week Performance (%)

SPDR S&P 500 Trust (NYSEARCA:SPY)

-2.11

Powershares QQQ Trust (NASDAQ:QQQ)

-1.94

SPDR Dow Jones Industrial Average (NYSEARCA:DIA)

-1.80

First, the state of the U.S. economy that will determine the pace of Fed exit from Quantitative Easing (QE). Strong numbers, especially on inflation and employment front--the two variables that monitor the Fed's mandates could cause another interest rate spike unsettling markets across all asset categories. This week, Wall Street will get a string of macroeconomic indicators that eventually influence inflation and employment numbers. Most notably, new home sales, which have been crucial to the ongoing recovery; Consumer confidence and consumer spending, which provide good indications about the state of the largest sector of the economy; and Chicago PMI.

Any major surprise in any of these indicators could unravel Wall Street.

Indicator

Consensus Estimate

Last Period

May New Home Sales

462,000

454,000

May Personal Income

+0.2

0.0

May Personal Spending

+0.3%

+0.2%

June Chicago PMI

55

58.7

June Consumer Confidence

75.2

76.2

Second, the U.S. dollar. A further strengthening of the dollar beyond the84.50 resistance level could prompt another round of sell-offs in U.S. exporters and precious metals.

Third, liquidations by large precious metals ETFs. According to a Barclays report, 109 metric tons of global gold exchange-traded-product holdings are still cash negative. This means that ETFs are in for another round of liquidations to raise cash, should investors head for the exits.

Fourth, the state and the direction of the Chinese economy. Most notably the China's looming debt crisis, as described graphically in a cover story in this weekend's Barron's. "Chinese companies and local governments have borrowed recklessly to build factories, train stations, and bridges to nowhere," writes Jonathan R. Laing. "Miles upon miles of empty apartment buildings rim hundreds of Chinese cities; industries suffer from rampant overcapacity; and largely empty new highways, bridges, shopping malls, railroad stations, and airports more than hint at problems."

China's excess capacity is certainly bad news for raw and energy materials exporters like US, Australian, and Brazilian coal companies; and that can explain the big dive in Australian stocks in the past five trading days.

Fifth, the top and the bottom lines of U.S. corporations. So far, earnings reports have been mixed, with upscale consumer companies like PVH Corporation (NYSE:PVH), Ulta Salon (NASDAQ:ULTA), and the Men's Wearhouse (NYSE:MW) reporting strong profits results, while bellwether technology companies like Oracle Corporation (NYSE:ORCL) reported week results.

Company

Expected EPS

Actual EPS

Ulta Salon

$.62

$.65

PVH Corp

1.35

1.91

Men's Wearhouse

.55

.65

Source: Yahoo.finance.com

What should investors do?

Keep an eye on the U.S. big picture, the housing sector, the consumer, the dollar; the Chinese big picture, and the U.S. small picture, the upcoming earnings reporting season for the U.S. corporations; be selective, buy the shares of brand name retailers that have reported solid earnings; stay away from commodities and commodity producing companies until there is a better visibility about the state of the Chinese economy; and buy some protection for market volatility like the iPath S&P500 VIX Short-term Futures (NYSEARCA:VXX).

Source: 5 Things That Will Shape The Direction Of Wall Street For The Rest Of The Summer