5 ETFs to buy this week

We've been fortunate to avoid a big sell-off in stocks. Stay conservative this week.

By Jamie Dlugosch May 16, 2011 9:49AM

If you are not trading in this market, you are either stubborn or ignorant. For those die-hard buy-and-hold followers, it is probably a combination of the two.


For the rest of us interested in making money in a market rigged against the little guy, we have no choice but to be nimble. Thank goodness Wall Street created exchange-traded funds.


While corporate profits continue to impress, stocks have traded sideways over the past two weeks. Consider yourself lucky that we have not gone lower.


I expect that to change soon. As such, I would strongly consider an ultra-short ETF for your portfolio this week. My choice would be ProShares Ultra Short Technology (REW).


The cross currants of stocks, richly priced combined with a macro environment of inflation and a weak consumer hamstrung by high unemployment and anemic wage growth, are creating a perfect storm for stocks to lose ground.


The only think holding us up is a very loose monetary policy.


For this week's pick I'm swapping out the short S&P 500 selection for the downside exposure to the technology sector. Stocks in that group are likely to lead the way down. If stocks do lose value this week, this fund will help you offset any losses on the long side.


I recently completed an educational series on trading stocks during earnings season. My conclusion was that stocks are overdue for a pause. Prices versus expectations are pretty well matched. In many cases the prices have exceeded expectations.


The best thing for traders and investors of stocks would be to see a protracted correction. I'm not sure a protracted period of selling will be forthcoming, but I do think a correction is more than possible. It is the most likely occurrence.


Here are five ETFs to buy this week:


ProShares Short Russell 2,000 (RWM) – The RWM kept the five ETF’s here close to the break even mark for last week. It wasn’t a huge loss, but it was more than the losses on the S&P 500. This week with stocks likely to go lower look for more of the same.


ProShares Ultra Short Technology (REW) – I’m rotating the second short pick for the week to the short side of the technology space. In addition, I’m turbo-charging the short exposure with an ultra short pick. The REW uses leverage in order to position the portfolio for losses greater than the overall market. This week should be the last round of hard selling before traders leave for summer vacation. The REW puts us in position to capitalize on any selling.


SPDR Dow Jones Industrial Average (DIA) – Look for Dow stocks to do better than the rest of the market this week. Investors looking for safety will gravitate to the larger industrial names in the market. Valuations here are still attractive relative to expected growth. Decreases in the dollar will boost profits of these multinational corporations.


PowerShares Dividend Achievers (PFM) – Investors made money albeit small amounts owning dividend stocks last week. That trend will continue this week as investors look for a safe haven in a choppy market.


SPDR S&P 500 (SPY) – Finally we stick with the long S&P 500 ETF. We won’t make a ton of money here if stocks are losers this week, but we will lose less than other segments of the market.


The five picks last week beat the market again. Do the same this week by maintaining an equal weight in the above five picks.

Tags: etf


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