5 ETFs to buy this week

Time to take a long-short absolute-return approach to your trading.

By Jamie Dlugosch Feb 21, 2011 1:51PM

Image: Funds (© ThinkStock/SuperStock)Stocks gained more ground last week on the strength of powerful earnings and merger and acquisition activity. The S&P 500 added 1% to its impressive streak of gains in 2011.

 

I’ve seen this sort of market before. Just when you think stocks should go down, they go up. What gives?

 

The bottom line is that the further removed we get from the recession and financial crisis, the more confident investors become. More and more investors are buying stocks for any number of reasons.

 

The cycle is as old as the hills, but at some point the music will indeed stop or at least take a breather.

 

That’s why I will once again this week recommend the ProShares Short Russell 2000 (RWM) for ETF traders.

 

I have no idea when the market will take a breather, but when stocks get like this, there is no sense in being a hero. I like to buy when others are selling and sell when others are buying.

That tried and true formula works. If that means missing out on some gains in the interim, so be it.


With this column, I am using ETFs to generate absolute returns. That means I don’t want to lose money. At the same time, I can make money, too.

 

This week there is simply not much to say about stocks. Earnings will likely be strong this week, and conditions are ripe for more gains. Then again, a correction could be coming at any time.

 

I’ll play it nice and safe just as I did last week. Here are the five ETFs to own this week:

 

ProShares Credit Suisse 130/30 (CSM) – The long/short nature of this ETF has been performing like clockwork since being added to my selections here. The market is moving higher and so too is this fund. If stocks do correct, this fund will go down less thanks to its 30% allocation to the short side of the market. I continue to believe that the CSM will be one of the best places to be over the next month or two.

ProShares Short Russell 2000 (RWM) – Small cap stocks did very well last week beating their larger brethren. Investors get hurt then owning this ETF when stocks are going up as they are. That is okay since that is the price for protection. If and more likely when stocks retreat this little insurance policy will do quite well. I would keep the protection in force until we see a nice decline in the market.


SPDR Dow Jones Industrial Average (DIA) – Dow stocks did not perform as well last week perhaps hinting that a pause is imminent. The DIA gained only three quarters of a percent during trading last week. Such is likely to be the trend for this ETF as the market looks to take a breather. In fact investors can expect fractional gains or slight losses should the market decline next week.

 

PowerShares Dividend Achievers (PFM) – No matter what transpires in the market dividend investors are likely to get paid. The PFM is another form of insurance at or near a market top. In fact, many large cap dividend stocks are undervalued as investors have bid up smaller stocks. As the economy gains strength these dividend stocks become even more attractive. For certain I like this fund from the perspective of expecting a market pause or correction.

SPDR S&P 500 (SPY) – This fund just keeps going up and up. That’s fine by me since I know that if the market does go down, I just am not going to get hurt as much owning this fund. Here is where investors can make money even if they are a bit pessimistic on things. That is what absolute return investing is all about.

 

Take an equal weight in each of these positions and lose less if the market does take a step back this week.

Tags: etf
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