5 ETFs to own this week

Will a market collapse be followed by a recovery rally or a crash?

By Jamie Dlugosch Aug 8, 2011 10:09AM

A modest sell-off became a landslide last week as stocks lost more than 7% in the five days of trading. Soft economic numbers and concerns about debt issues in Europe trumped strong earnings. The coup de grace came after the market closed when S&P downgraded U.S. debt.


Some, especially those that believe the sky is falling, say the move was entirely predictable and the start of something worse (or a mere continuation of the collapse that began in 2008).


I disagree entirely. What we are seeing now is fear based selling. It is a manufactured crisis that may very well become a self-fulfilling prophecy. Whatever the case may be the reality is that stocks are falling, but now is not the time to panic.


I missed the sell-off for sure, but I don’t want to miss the recovery rally. Stocks are cheap and at the top of my buy list is the iShares Russell 2000 (IWM).


Investors should be buying from here despite what is sure to be a down day on Monday thanks to the debt downgrade. Corporate profits are strong and economic data is not that bad.

Small stocks have been absolutely crushed in the sell-off. I’ve seen many small company stocks release very strong earnings crushing the estimates. You make the choice: believe in the fear or believe in the numbers.


I’m choosing to believe in the numbers. As such I’m sticking to my guns with the 5 ETFs to own this week. They are as follows:


iShares Russell 2000 (IWM) – The IWM lost more than 10% last week. That makes the total loss darn near 20% since the sell-off began. The selling is mere speculation. The evidence is corporate profits and profits are strong. This one is an easy buy this week.


iShares S&P North America Technology and Multimedia Fund (IGN) – Two weeks of 8.5% losses have the IGN down some 17% in the last two weeks. There may be more losses in the short term, but I think a strong recovery rally will cut those losses significantly in the next week.


SPDR Dow Jones Industrial Average (DIA) – If there is one place to hide in this mess it would be in the Dow Jones Industrial Average. Dow stocks are printing cash, buying back stock and paying rich dividends. Expect the Dow to be the relative winner this week if stocks continue to fall.


SPDR S&P Homebuilders (XHB) – The speculation is that a double dip recession is guaranteed. If so, an already depressed home market falls further. That is bad news for homebuilding stocks and explains why the XHB was down more than 11% last week. I don’t buy the double dip argument and will stick with homebuilders this week.


SPDR S&P 500 (SPY) – The S&P 500 is incredibly cheap relative to earnings. Any recovery rally starts here. If stocks do go down the SPY should go down less as investors seek the safe haven of larger stocks.


Keep an equal weight in the five picks above.


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