5 ETFs to own this week

As fear subsides, look for a recovery.

By Jamie Dlugosch Aug 15, 2011 10:05AM

Wow, what a ride. Stocks go down 600 points one day, up 500 the next, only to give it all back the day after. Friday’s calm 125 point increase on the Dow was like a walk in the park.


Too bad it left us a bit short of break even for the week. Oh well, I suspect most investors will take the small loss as some sort of victory. They should be cheering all the way to the bank.


The intense volatility has created one of the best trading landscapes in recent years. Dare I say day trading is making a come back? Why not when you can make 10, 20 or even 30% on a stock trade in one day?


If you can remove the fog of nonsense from the discussion, you will find plenty of reasons to want to own stocks, even for the long term. The ETF I would own this week is the iShares S&P North America Technology and Multimedia Fund (IGN).


Stocks sunk way beyond where current economic and corporate data are indicating we should be. There isn’t even a whiff of recession out there and yet the market with all that selling is telling you a recession is guaranteed.

I’ve seen this story before. Traders take stocks in a certain direction absolutely sure of what will transpire next. The truth is they have no clue.


About the only certain outcome is that capitalism works and that the ultimate goal of capitalism is growth. The one and only objective of the corporation is to make a profit. No matter how politicians may try to screw that up capitalism perseveres.


I expect more recovery this week and as such am sticking to the long side of the market with 5 ETFs to own this week. They are as follows:


iShares Russell 2000 (IWM) – The Russell 2000 hit bear market territory when at one point last week the index was down more than 20%. An impressive rally at the end of the week fell a bit short of catching the rest of the market. When stocks do rally impressively this ETF will be up big.


iShares S&P North America Technology and Multimedia Fund (IGN) – Prior to last week stocks were a complete whitewash. There was no place to hide. That spell broke last week as technology shares made positive gains. The IGN finished the week up more than 1%. I expect more big gains this week.


SPDR Dow Jones Industrial Average (DIA) – Dow stocks are really cheap. They have lots of cash to buy back stock and pay dividends. There is no double dip in the Dow. I would own this fund this week as investors discover that value.


SPDR S&P Homebuilders (XHB) – Homebuilding stocks did not fare as well last week. The already beaten down group would likely struggle if there is indeed a double dip. Wounded companies in a weak economy rarely make it. Investors are ratcheting down expectations for the group. The stocks now are very cheap. Own this ETF for another week.


SPDR S&P 500 (SPY) – It would be very tempting to be long and leveraged this week given my conviction about a recovery rally. That said, I temper my enthusiasm for the overall objective of absolute returns. The ETF picks here stumbled with the rest of the market, no need to fall further by an ill-advised overly aggressive ETF selection. Nope, I’ll just stick to the S&P 500. We have plenty off fuel elsewhere with these picks.


Keep an equal weight in the five ETF’s above.


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