ETFs That Shine Despite Market Troubles

The U.S. stock market's fall from grace has given the "bears" Yosemite-sized picnic baskets to digest. This is the worst housing decline since the 1930s. This is the ugliest oil environment since the 1970s. This is the worst month since September 2002.

Without question, the numbers/predictions have been very disconcerting. And it would be very easy to talk about the lending-led crisis in terms of ETFs that have profited from the recent woes on Wall Street.

For example, Ultra Short Consumer Services (SCC) is taking advantage of perceived and real dropoffs in retail spending. The investment tracks twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Consumer Services Index. Gains since the October 9 market highs? 18%-20%+.

I've talked about aggressively seeking downside gains from particular economic segments in previous posts. And yet, since the current fundamentals are more indicative of a crisis-led correction, they are difficult to "play."

Specifically, by the time one witnessed several write-downs from financials and/or weak corporate earnings from retail bellwethers, the essential gamble required one to tackle an entry point. By the time one likely pulled the trigger off of a high, the index is about 5% lower already. And by extension, SCC would have dropped 10%.

So a short-term trader who braved the "twice the inverse" waters may be up 10% through November 20, not 20%.

Now comes the more challenging part. When does Mr. Trader realize the gain? Most "short-termers" are not willing to lock in their profits, due to an unshakable belief that things are only getting worse. Unfortunately for those folks, they get squeezed on an unexpected Fed intervention or a surprisingly strong data point, and most of the unrealized gain disappears.

I have seen the "dark side" investor lose time and time and time again. The victories serve as bragging rights for the shortest of periods, but rarely help over the long-term.

Is the market in horrendous shape right now? Undoubtedly. Are there are a few bright spots. There are... particularly in the defensive ETFs like Global Consumer Staples (KXI) International Communications (DGG).

Put another way, the best offense in a huge uptrend is an exceptional offense. Similarly,the best offense in a a troubled market is a strong defense. Ergo, look to relative strength from KXI and Utilities (JXI), both here and abroad.

Put yet another way, the Chinese have a much-debated definition of crisis: a crisis is a precarious moment that is characterized by danger as well as opportunity. Your task? Determine whether today's crisis is an opportunity to bet against the market with "short ETFs" or an opportunity to demonstrate a solid defense.