Ultra-Aggressive ETFs: Short-Term Bet Against the Bears

It's no secret. Everything has been going right for commodity investors. Each week seems to bring incredible news about "black gold" reaching new heights or "old gold" breaking $1000 per ounce.

Similarly, we get story after story about the weak U.S. dollar. Many foreign currencies have successfully generated income as well as capital appreciation at a faster clip than U.S. treasury bonds.

This is what happens in a poor economic environment (a.k.a. recession). Investors seek alternative assets (e.g., currencies, commodities) for protection and upside potential. They also flee stock assets entirely.

Some ultra-aggressive investors try to make money on the down side. They "short" the market, betting against the market's ability to rise.

It rarely works, of course. The overwhelming majority who try to bet against the market fail like "wanna-be" professional gamblers. (With respect to typical "short" stories, check out the 600-pound gorilla piece that I wrote in January.)

Nevertheless, there will always be those who wish to take on a riskier endeavor. For those folks, then, may I suggest the following: Go long... go reallllllly long.

Everyone is betting against stocks, particularly financial stocks. And we're hitting new 52-week lows for the financial sector as I type. It follows that one could look to Ultra Financials (UYG).

A contrarian recognizes that things are so bad -- so horrific, in fact -- that most (not all) of the subprime/default/foreclosure/bond rating bad news has been taken into account. Nobody wants banks or insurers right now. So you, my friend, can "double down" with UYG.

The chart above shows the potential. Off the January lows, one was able to make 20% in 2 weeks. We may be due for a similar rally, and it wouldn't take much in the way of the slightest good press for major financial institutions to bounce.

Now... should you stay there for very long? Nope... way too risky. You might set your sights on a 20% stop-gain, then exit the double long position.

Here's another one that may work for the ultra-aggressive trader. Big-cap tech is hitting historically low valuations. Why not consider Ultra QQQ ProShares (QLD)?

Granted, there's no evidence that the tech-dominated Nasdaq is in good shape. And investors are still running scared from the "tech wreck" of 2000-2002. But the simple recognition that nobody wants this stuff may provide for a near-term relief rally where QLD would benefit.

Once again, traders should trade. And staying in the ultra-long environment for more than a 20% gain is "greed gone wild."

To clarify, this is not the way to invest for the long-term. It's not the way to invest... period, exclamation point!

But this could be a trader's opportunity. And for that reason, I am pointing out the ETF possibilities.

Long-term investors? Use currencies, commodities, bonds and stocks for risk-managed growth. Equally important, maintain your discipline for preventing a big loss.

Comments

[Paulo:]

The markets now seem to be testing the 52 week lows and this might be a very risky time to go ultralong. Worldwide, it looks no better.

Sure enough, if this is a bear market, there will be a nice sucker's rally before it is over.

2008 Mar 10 01:57 PM