Plays for the Current Bounce

A long journey starts with the first step.
- Ancient Chinese saying

And perhaps that’s where we are today. As of the close of trading on Thursday, our market leadership model moved into bullish territory for the first time this year. When both our market leadership model and interest rate model point to buy, it’s usually fairly safe to be in the market.

The Correct Call hears the same talk of “recession, recession, recession” that our readers hear 24/7 on the squawk box. While all this talk scares the amateur investor, be it individual or professional, into paralysis, the savvy investor knows opportunity is right around the corner.

Thanks to a study by Northern Trust, we know that on average the stock market has gone UP during the last nine recessions. Yes you read that right: UP. (See the chart below) In 100% of the cases the market was down the 6 months before the recession started. Sound Familiar?

Our confidence could continue to grow as our momentum indicators are inching towards bullishness. A couple of up days and we could have another set of major buy signals.

If we have made the correct call, there are a few ways we would play this anticipated rally.

Conservative investors might want to own:

iShares Dow Jones Transport Average (IYT): These share track the Dow Jones Industrial Average. We also like the technical indicators on IYT as the short-term moving averages just moved above the long-term moving averages. This is usually considered a fairly strong buy signal. IYT could make for a nice total return play as it also pays a 1.12% dividend.

Another ETF that passes our technical screens and looks likely to make money for investors is PowerShares Dividend Achievers (PFM). This is an interesting portfolio made up of only companies that have increased their dividends every year for at least 10 years. Think of it as getting a raise every year since 1998! It is currently paying its shareholders $334 a year for every 1,000 shares.

More aggressive investors, the high risk high reward types, should think about owning Ultra QQQ ProShares (QLD). This portfolio is high octane and designed to return 200% of the performance of the NASDAQ 100. If we are right, QLD investors can be rewarded rapidly and handsomely. Remember that the 200% applies to the downside too.

One final note of caution in all this euphoria, this is a rapidly changing and fluid market subject to abrupt changes.

Disclosure: None