ETF Pick of the Week

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By ETF Stocks

Friday’s Employment Situation Report disappointed investors so badly that they knocked the NASDAQ and S&P below key support levels. Both indexes fell through rising, lower support lines that connected their two most recent pivot bottoms.

 

The breakdowns put the indexes on a collision course with their early March lows, 2910.32 for the NASDAQ and 1,343.36 for the S&P.  The Dow hasn’t broken its trendline like its broader cousins; however, it is right on the razor’s edge and will test its April low of 12,715.93 should the NASDAQ and S&P slide to our target backstops.

Additionally, Friday’s NASDAQ and S&P action triggered bearish MACD cross-unders on their charts. Once again, the Dow trails the pair, but is only one, red day away from making it a trio of technical sell signals.

If that’s not enough, ETF Stocks’ two primary market measuring sticks have gone sour. When upward momentum and leadership stocks start to fail, our experience says the sidelines are the safest place to be. Obviously, our indicators aren’t foolproof, but history says they are accurate enough to trust them, and we do!

We don’t mean to pile on, but… the French, Greeks, and Germans probably made matters worse with their votes on Sunday. In France, Francois Hollande, a socialist, won the presidency and vows to implement a tax and spend approach to fixing the nation’s problems.

In Greece, voters gave more power to fringe right and socialist groups who both promise to blow-up austerity measures imposed on them. And in Germany, Angela Merkel saw her influence diminish due to a vote in the state of Schleswig-Holstein.

Undoubtedly, the European political shake ups will bring the EU’s debt crisis front and center once again. The reintroduction of uncertainty could bring all the volatility that we saw last summer back, and that was no fun.

So what’s an investor to do? ETF Stocks believes that shorting the Dow makes the most sense as it has some work to do to catch up with the NASDAQ and S&P 500. We put it at 80/20 stocks head lower from Friday’s close. So, with that confidence, we are going to go a little more aggressive than usual and suggest ProShares UltraShort Dow30 (DXD).

The exchange traded fund seeks daily investment results, before fees and expenses, that correspond to twice the inverse (-2x) of the daily performance of the index. In English, it means that if the Dow drops 2%, the DXD will gain roughly 4%.

ETF Stocks likes to use the inverse ETFs more like insurance policies than long-term holds. As long as important support levels continue to fold, we hang on to our short position. Once the underlying index shows the worst is over, we sell out.

Keep it here as ETF Stocks will do its best to walk you through what we see happening next. 

 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs , Investing Ideas , Stocks

Referenced Stocks: DXD

ETF Stocks


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