5 ETFs to buy this week

The goal is to preserve last week's gains.

By Jamie Dlugosch Mar 21, 2011 9:43AM

As expected the market took a tumble last week. The S&P 500 lost nearly 2% during the five days of trading, but the results could have been much worse. Late in the week buying kept the damages to a minimum.

 

Disaster in Japan, worries about inflation, geopolitical risks were the excuses for the pull-back. Remove the headlines though and stocks on pure valuation alone were due for a correction.

 

The best way to make money with a correction is to trade exchange traded funds with a long/short approach. Last week’s pick of the ProShares Ultra Short Technology ETF (REW) worked perfectly gaining 5.5%.

 

I would lock in those gains and replace this fund with the ProShares Short S&P 500 (SH) for this week.

 

We are by no means out of the woods. That said the selling should be welcome news for those interested in the long term health of the market. A perpetually rising market is not sustainable.

 

I would not be surprised to see stocks move higher this week especially with the buying of stocks late last week. The bias is to go higher, but investors are rightly cautious. There seems to be an understanding that buyers cannot simply pay any price for a stock.

Add in the geopolitical risk with this weekend’s coalition attack on Libya and stocks could go lower next week. All together it seems best to have a balanced approach to the market this week.

 

I’m taking out the more aggressive short ETF and replacing it with another short ETF, but one that does not use leverage. That change puts my five picks for this week in a slight long bias position.

 

Here are my five ETFs to buy this week:

 

ProShares Credit Suisse 130/30 (CSM) – This fund lost nearly 2% last week tracking the market evenly. I actually expect better from this fund. When the market is down I’d like this fund to lose less. That has not been the case in the short term. On the long side the leverage is helping the fund as it should, but it is hurting more when the market is down. I still think of the CSM as a cheap form of insurance. With the market looking to recover lost gains, this fund makes sense. I’ll stick with it for another week.

 

 ProShares Short Russell 2000 (RWM) – The RWM won again last week although the gains were not as strong as the week prior. Small cap stocks held up relatively well during the landslide last week. Perhaps that is a signal of strength for the future. Whatever the case may be, I like having this pick this week. I want to have some short exposure in the portfolio and this fund provides that. With a net long bias to the five picks here, the small cap short provides extra protection since small cap stocks tend to fare worse in a downward moving market.

 

SPDR Dow Jones Industrial Average (DIA) – The most likely direction of the market this week is up. For that outcome, I like owning the larger cap ETF. Dow stocks were fairly week last week. This fund is poised for a rebound.

 

PowerShares Dividend Achievers (PFM) – The dividend ETF did not do as well as I expected last week. Investors simply sold stocks across the board. That selling should provide for some sour of bounce back rally this week. The main reason for having this fund is to capture gains in a sideways market. We may be moving sideways from here given the external factors facing the market. I’ll keep the PFM this week and likely beyond.

 

ProShares Short S&P 500 (SH) – ETF made big money last week with the REW. This week we take a more conservative short approach with the ProShares Short S&P 500. This fund is intended to track perfectly with the S&P 500. There is no leverage or turbo-charging here. Instead investors get market protection in the event of more losses this week. We made our money last week relative to the market. This fund will allow us to keep those gains.

 

Last week’s fractional gains were a big victory in a market down nearly 2%. Take an equal weight in each of these positions for the next week to hold those gains.

 

Top Stocks for 2011.

Tags: etf
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