4 ETFs to watch this week

These exchange-traded funds deserve attention no matter what happens on Capitol Hill.

By Stock Traders Daily Dec 31, 2012 12:24PM

US Capitol (© Donovan Reese/Getty Images)By Billy Fisher, Stock Traders Daily

 

Regardless of the outcome of the fiscal cliff negotiations on Capitol Hill, the coming week will be a pivotal one for traders and investors alike. 


The majority of the focus will remain on Washington, D.C., and the ensuing reactions of the equity markets, but there are other reports due out in the coming days that short-term traders will want to monitor as well.

 

Market mayhem

Given the possibility of a failed agreement or an agreement that is perceived to be unfavorable for economic growth, Stock Traders Daily favors ETFs such as ProShares UltraShort QQQ (QID) and ProShares UltraShort Dow30 (DXD) as vehicles to guard against these risks. "I believe everyone should have 15% of their portfolio in double short ETFs," says Stock Traders Daily President and CEO Tom Kee Jr.

 

With such a weighting, all is not lost even in the event of a "favorable" outcome in D.C. "If they somehow sidestep the cliff-headwinds that are higher taxes and lower spending, I do not expect to get all of the increase because of the existing 15% double short weighting," Kee says of a market rally. "However, the proactive nature of the rest of the portfolio should allow me to realize a good proportion of it."

 

The key objective for traders this week should be to ensure that they have risk controls in place. "I am positioned to realize nice gains if the market declines and only modest gains if the market increases," Kee says. "At no point is my neck out there to the extent at which it might cause emotional stress or influence stupid human mistakes."

 

Petro plays

Shifting focus to the economic calendar, crude inventories will be reported on Friday. Last week, the Department of Energy said that crude oil inventories declined by 586,000 barrels compared to a forecasted drop of 1.9 million barrels.

 

The news was an additional drag on the United States Oil Fund LP (USO) which is wrapping up a lackluster year. The fund cratered 13.3% in 2012. Until the excess supply dissipates, which could be some time, expect USO to trade sideways.

 

Natural gas inventories are also due out on Friday. A mild start to winter has left the United States Natural Gas Fund (UNG) reeling. The fund declined 6.4% during the past month although the 50-day moving average has held above the 200-day moving average. Provided that inventories do not rise any higher than expectations, this ETF could see a modest recovery as the trading week comes to a close.  

 

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