5 ETFs to buy this week

The professionals return to Wall Street. Which way will they take the market?

By Jamie Dlugosch Jan 3, 2011 10:43AM

James Dlugosch

I've heard some people say that New Year's Eve celebrations are amateur hour. The same thing can be said about the last two weeks of trading in the stock market. Void of professional traders, stocks drifted this way and that with no real direction.


Well, now that the new year has begun, amateur hour is over. It is time to get busy. I know the pros will be back at it from day one. You need to be prepared for what is coming.

Most expect the market to go up in 2011. I have the same opinion, but a record December must give even the most optimistic investor pause. To me it looks like momentum is going to win and stocks are likely to gain right out of the gate.

The best ETF trade to make in this environment is with the ultra-long oil and gas ETF (DIG). A booming economy will have oil racing toward $150 per barrel before we know it and that race begins next week.


In addition to oil, the January effect begins this week. Owning small cap stocks makes sense as we start the New Year.


Another long momentum trade to play in the first week of January is in the homebuilding sector. Will the housing market finally bottom? Investors are jumping on homebuilders expecting a big recovery.


I want to start the year off on the long side of the market. Here then are five ETF’s to own this week:


I Shares Russell 2000 (IWM) – When the professionals return to the market they will do so armed with dollars to spend. The best deals in the market for all that cash reside in the small cap space. The January effect is well known. We started to see small cap stocks go up in December. That trend continues as we start the New Year.


SPDR KBW Regional Banking (KRE) – I expect a minimum of four big bank transactions to take place in January with the first one being announced next week. Bank executives cannot get behind the market. If stocks go up deals to acquire assets become more expensive. Banks will want to move and move fast. The KRE was a big winner at the end of December. It will be a big winner in the first week of January too.


ProShares Ultra Oil & Gas (DIG) – One piece of news worth noting at the end of the year came from the oil producing cartel OPEC. With oil approaching $100 per barrel some thought the cartel would be compelled to lift production. The tight fisted oligopoly does not appear interested in such a strategy. They are betting that growing global economies will gladly pay $100 or more for crude.


SPDR S&P Homebuilders (XHB) – The housing market is showing some signs of life. Investors are not waiting bidding up homebuilders. Weakness in the group during December provides an opportunity today. This is a short term trade based on optimism for the New Year. I expect the homebuilder ETF to outperform the market in the early part of the year.


SPDR S&P 500 (SPY) – So goes January so goes the market for the rest of the year. With most, include me expecting stocks to go up in 2011 January is likely to be a positive month. Certainly momentum is on our side after an impressive December. Playing the S&P 500 ensures we capture our share of the gains.


Our trades for the last week of the year were slightly negative. It is time for the real market to come back to life. Take an equal position in each of the above recommendations for market beating returns.


My Top 10 stocks for 2010 gained more than 28%. How will I do this year? You can find out by requesting my 10 Top Stocks for 2011 absolutely free.

Tags: etfoil


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