5 ETFs to buy this week

Traders can be a little more aggressive as we approach what should be another strong earnings season.

By Jamie Dlugosch Apr 4, 2011 10:01AM

Stocks continued to rally last week. Investors are in a buying mood despite significant headwinds and valuations that are at the high end of historical norms.


Instead the focus is on the feel-good growth of the economy, supported by last week's strong employment number. The unemployment rate is dipping, and that is good for stocks irrespective of valuations.


The moves of the past two weeks indicate that the market has turned a corner. With earnings season about to fire up, investors can expect more gains over the next few weeks.


I’m not entirely convinced, given where valuations stand, but it is never wise to fight the tape. This week I’ll ride the tape. My ETF of choice this week is the IShares North American Technology-Multimedia Networking (IGN).


This fund will replace the small-cap short ETF I was using to hedge the portfolio against a possible correction. The move will put the five trades here in a more aggressive position yet still protected against any significant downturn.


The one thing that will help valuations return to more attractive levels is strong earnings. Given that companies are hiring more employees, it is a good bet that they are spending money on products as well.



The wheel should keep on turning and strong profit growth will fuel more gains in the market. The opposite holds true if we see earnings weakness so it makes sense to still be a bit cautious. I wouldn’t want to lose money at this point in the game, but I’m okay being a bit more aggressive on the long side of things.


Here are my five ETFs to buy this week:


ProShares Credit Suisse 130/30 (CSM) – The CSM performed very well last week with gains of nearly 2%. That performance is more than what I would hope for with this pick. The leverage component is clearly adding a kick to performance without being held back by the short positions. That suggests to me quality stock picking. I expect the same sort of performance in coming weeks. In addition is stocks go down investors should not be hurt as much with this positions.


IShares North American Technology-Multimedia Networking (IGN). – With two weeks of gain I paid a fairly steep price for insurance with my former pick of the small cap short ETF. Small cap stocks moved significantly higher thus pulling down the value of the RWM. I’ll take the insurance off the table this week as I expect more gains. The driver will be positioning ahead of earnings season that will begin in earnest next week. Typically technology funds lead the way higher with strong profit results hence my selection of the IGN for this week.

SPDR Dow Jones Industrial Average (DIA) – Dow stocks lagged a bit last week, but that’s okay. We are not looking to get rich here. From a valuation standpoint the Dow has room to run with less downside risk compared to smaller stocks in the market. This is a good fund to own when riding a wave of momentum. If the wave crashes we shouldn’t get too hurt here.


PowerShares Dividend Achievers (PFM) – Investors are really attracted to dividend stocks in this market. The PFM gained 1.8% last week handily beating the S&P 500. Prices are rising and cash is flowing. That is a powerful combination and the reason this group of stocks is finding buyers. Keep this position intact for another week or two.


ProShares Short S&P 500 (SH) – All is not wine and roses in the market. Keeping some insurance against a potential correction does make some sense. We can get that insurance with the SH. This ETF will hurt our performance on the long side of the market, but such is the price for downside protection. With an absolute return strategy, being 100% long requires a higher degree of certainty that stocks will be moving higher and that certainty is lacking today. Keep this position intact for the coming week.


Take an equal weight in each of these positions for the next week as we prepare to ride the wave of earnings season.


Top Stocks for 2011.

Tags: etf
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