By ETF Stocks
Stocks are going to need a magic bullet of a Bubba Watson shot to get out of the trees this week. Last Friday’s Employment Situation results landed in the rough and has the indexes poised to fall to or below their respective 50 day-averages during the week.
To pull stocks out of the woods, bulls are going to need to pull off a shot that starts out under and between the trees, ascends and hooks 40 yards to land softly on the green. With a light economic schedule on tap and debt smoke rising once again in Euroland, the only club left in the bag this week is earnings.
First quarter results are next up and officially tee it up on Tuesday with Alcoa, Inc. (AA) and the biggest name of the week, Google Inc. (GOOG) reports on Thursday. Analysts believe 2012’s first-quarter profit results will produce less than 1% growth relative to the same timeframe in 2011. Additionally, the financial models on Wall Street predict that six of the main 10 sectors will produce lower results than a year ago.
As a result of the flat-line profit outlook, it is ETF Stocks view the forward guidance will be more important than actual results. Managements’ second quarter forecasts will be the deciding factor on the shot traders are likely to play next.
With risk and fear returning to the market, it could be time for investors to get a little defensive. ETF Stocks suggests considering an inverse ETF like ProShares Short QQQ (PSQ). The exchange traded fund seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the NASDAQ-100 Index®.
In English, it means that if the NASDAQ-100 loses 1%, PSQ should gain roughly 1%. To get to its 50-day average, the index would need to drop roughly 3% from last Thursday’s close.
If we are at the onset of a much waited for correction, a retracement of 33% of the recent rally is the initial signpost market technicians will look for. Coincidently, that would place the NASDAQ near support at the March low of 2900ish, or 5.8% lower than last week’s close of 3080.
ETF Stocks doesn’t see ProShares Short QQQ (PSQ) as a long-term investment strategy. Rather, we see it as more of an insurance policy against what looks like a rough patch ahead. Consider it your utility club with a difficult lie to play. If it all goes right and you make good contact, the ball lands safely on the green. If not, you are not likely to do too much damage and still have a clear shot to the pin to play next.