5 ETFs to buy this week

Look for a rally as stocks bounce off technical lows.

By Jamie Dlugosch Jun 13, 2011 9:51AM

So how do you like that buy-and-hold strategy today?

 

Investors who have stood pat during what is becoming a very significant market correction have watched their investment gains for 2011 evaporate. Stocks lost ground again last week, and the major indexes are essentially even for the year.

 

I'm getting whacked, too, with my five ETF picks, but because I’m using a long-short absolute return approach, the losses are nowhere near as severe as the overall market's.

 

Investors are clearly concerned about this little economic soft patch becoming something a bit more severe. Irrational or not, the selling has definitely helped take some of the steam out of market valuations.

 

Given the multiple weeks of selling, the rational call for this week is for stocks to recover. The ETF to buy this week is the iShares Russell 2000 (IWM).

 

Small stocks have been pummeled during the past six weeks. For much of that time I was suggesting that investors use the short Russell 2000 as a way to hedge their bets. Now I want you to make money when stocks invariably bounce back.

 

Making this pick will put all five of my picks this week on the long side of the market. I’m OK with that exposure, since we have protected our 2011 gains during this choppy market.

 

Remember, nothing moves in a straight line. We've had losses now for many weeks in a row. I expect a bounce-back rally this week.

 

Here are the five ETFs to own now:

 

iShares Russell 2000 (IWM) – The flip side of this pick was very good to us. Will the long side reciprocate? I think so. When stocks bounce back the biggest gains will be in the small cap space as those stocks have lost the most during this recent bout of selling.

 

iShares S&P North America Technology and Multimedia Fund (IGN) – The technology sector took a real pounding last week. This ETF was down 6% for the week. You need to be willing to take the bad with the good with this fund. When stocks do recover this fund could very well move 10% higher in one week. Perhaps this will be that week.

 

SPDR Dow Jones Industrial Average (DIA) – The Dow Jones index was down more than 2% last week. We are now reaching a technical floor that will likely produce the bounce back rally that I am now looking for. It is simply not reasonable to think that stocks will stay flat for 2011 especially when you consider profit growth. There is are least 5-10% gains in this index that investors should see between now and the rest of the year.

PowerShares Dividend Achievers (PFM) – I’m taking the big dive in the market this week, but I’ll keep this dividend pick to cushion the landing should we fall further. It won’t preserve gains like a short, but it is a small blanket of comfort in case the bounce back fails to materialize.

 

SPDR S&P 500 (SPY) – I’m a sucker for the large cap stocks. They still have the best values in the market. This position is also a bit of a hedge as the other picks in the small cap and technology spaces will fall hard if stocks lose value. The S&P will lose in a down market, but not as much.

 

Keep an equal weight in the five picks above.

Tags: etf
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