Toast the Bear Market With These 10 ETFs

by: Dutch Trader

Stocks are out of favor and we don't know if they are going to decline even more the next weeks. A lot of investors that I speak to think we are bottoming and that a major rebound is imminent. If a lot of investors say these kind of things, I think we are not yet at the end and stock prices will decline even further.

But actually, there are many indicators that scream "buy"'. Which ones? I will mention a few:

  • Most indexes have fallen 11 days in a row, at least in Europe.
  • The stock market crash is on the front page of every newspaper.
  • The VIX is above 50 (height in 2008 at point 80). A normal average around 20.

Only 4% of the NASDAQ stocks stands above their 10-week averages. The last time that happened was in the spring of 2009. Also, the call-put ratio stands at its lowest point since 2009. In some market comments, there is talk about pre-Lehman levels. The number of rising stocks relative to the number of falling stocks in Europe is even lower than in 2008.

Adjustments downwards

Of course there is a fundamental reason for this massive decline. The economic indicator - the ISM New Orders Index - has already been declining for some time now. At the beginning of August this indicator went further down, below the key 50-border. Many investors adjusted their economic expectations downward.

Less economic growth = less profit = lower rates. The last time that this index was below 50 resurfaced in the spring of 2008. You would almost think there is the long awaited double dip.

I almost forgot to mention that we still have the euro debt crisis and US dollar debt crisis. When you see the CD spreads of France increasing (and that of the USA not), you could be more concerned. Spain and Italy are already "too big too fail" (a real 2008 phrase).

Bear market or not, most succesful investors are defined by their actions in a bear market, not a bull market. Making money is relatively easy when the entire stock market is rising. Aggressively seeking the opportunity provided through deep adversity when the stock market is in a free fall requires far more than the ability to analyze a company. It requires a mindset that looks for a chance to shine, and this requires confidence and courage.

It pays to move opposite to the crowd, and in these instances of crisis, no matter how different the circumstances may be, the results are usually the same, you are much better off buying when the market falls out of fear.

Finally, bargain hunters embrace the timeless lesson from history that crisis equals opportunity. If you think it is a good opportunity to buy now and you want to sort out the individual risks of stocks, consider the following ETFs.

ETF or ETN Today 3 Mths 1 Yr YTD
Micro Caps (NYSEARCA:IWC) 6.6% -15.6% 6.4% -12.2%
Mid Cap (EMM) 5.5% -18.2% 5.2% -9.5%
DJIA (NYSEARCA:DIA) 4.0% -11.3% 4.9% -2.8%
S&P 500 (NYSEARCA:SPY) 4.7% -12.8% 4.0% -6.6%
Small Cap (NYSEARCA:SLY) 4.0% -17.1% 0% -10.5%

ETF or ETN Today 3 Mths 1 Yr YTD
World Index (NASDAQ:ACWI) 5.2% -14.3% 0.5% -9.2%
Developed Markets (NYSEARCA:EFA) 6.7% -14.4% -1.4% -8.8%
World ex-US (NYSEARCA:CWI) 6.6% -15.7% -1.7% -11.0%
Emerging Markets (NYSEARCA:GMM) 2.0% -16.4% -5.6% -15.7%
Brazil, Russia, India, China (NYSEARCA:BIK) 4.6% -16.5% -7.7% -14.1%

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.