Playing Defense With the Domestic Portion of Your ETF Portfolio

Have you been playing defense with your exchange traded fund (ETF) portfolio lately?

If so, good. The time to dribble to the other side of the court has not occurred, as the domestic market has not yet fully rebounded. There will come a day that some beleaguered areas such as financials will inch back over their long-term trend lines, but until then, there are ways to protect yourself.

Eric Bolling for The Street has a few ideas of defensive type ETFs to help keep yourself protected in the meantime.

• Consumer Staples Select Sector SPDR (XLP), down 2.1% year-to-date
• PowerShares International Dividend Achievers (PID), down 2.8% year-to-date

While both funds are down year-to-date, they're currently sitting above their trend lines (200-day moving average).

PID gives an international play on companies that pay dividends. By default, this ETF actually plays the weak side of the U.S. dollar and strengthens by other currencies upswings such as the yen, euro and yuan. XLP focuses on daily necessities such as toothpaste and toilet paper, items you aren't going to go without no matter how dire your straits. Well, we hope.

We say that if an ETF is below the 200 day-moving-average, it is recommended not to go in. Of course, if you're interested in more of a short-term play, you can use the 50-day moving average as your sell point instead.

But always make sure the trend is right before you invest, and remember that just because one area isn't performing, it doesn't mean that all areas are depressed.

The Market Will Eventually Swing Back, But Which ETFs Can We Turn To?

It doesn't seem like it now, but the markets won't always be depressed and there will come a time to get back into exchange traded funds (ETFs).

But will the ETF marketplace benefit when the pendulum swings back? The debate is still hot concerning the market's recent progress and whether the worst is behind us yet. Investors should be ready to be in a good position to capture the next upswing, whenever it takes place.

Investors who have been in cash as they've waited for the markets to recover are going to start looking around for places to put their money back in, and ETFs are going to prove to be an attractive option for them. They offer low fees, intraday trading, transparency and quick diversification. As word of them spreads, we predict big growth in them because of their attractiveness.

Billy Fisher for The Street spoke to Mark Luschini, a strategist for Janney Montgomery Scott, who reports some probable areas set up for a prolonged recovery-primarily financials and consumer discretionary. ETF investors should consider positions in:

• Financial Select SPDR (XLF), down 8.4% year-to-date
• Vanguard Financials (VFH), down 7.6% year-to-date
• iShares Dow Jones U.S. Financial Sector (ITF), up 0.3% year-to-date
• Vangurd Consumer Discretionary (VCR), down 1.9% year-to-date
• PowerShares Consumer Discretionary (PEZ), down 3.6% year-to-date
• Consumer Discretionary SPDR (XLY), up 0.6% year-to-date

Financials have taken their share of the beating, so any upward trend is going to help them shine.

We recommend that you wait until any funds you're eying cross their trend lines, however. Don't just get in because you think an area is going to turn around. Take a look at our strategy for getting back in.

Using Energy ETFs To Offset Gas and Oil Prices

Frenzy in the energy sector has reached a fever pitch, but are exchange traded funds (ETFs) that allow investors to hedge those prices necessarily a great idea?

The summer driving season is going to kick off soon, but with the way things are going, who can afford it? Oil passed $126 a barrel today, while gas rose to more than an average of $3.67, reports John Wilen for the Associated Press.

Oil's price spike came after concerns about Venezuelan President Hugo Chavez's ties with rebels who are threatening to overthrow Colombia's government. It may raise chances the the United States will impose sanctions on one of its largest oil suppliers, and Chavez might then cut off our supply.

Many investors have been looking at situations like this and wondering how they can lock in the lower prices and profit from the price hikes. ETFs that hold oil and gas futures are designed to rise in value at the same time their underlying commodities are going up in price, reports Rob Wherry for Smart Money.

Natural gas has benefited from the fear that supply and inventory issues will push crude-oil prices even higher as well, says John Spence for MarketWatch. ETFs like U.S. Natural Gas Fund (UNG), up 50.1% year-to-date, has also served as a means for investors to hedge their exposure to energy.

With all this good energy flowing around the markets, a new alternative energy ETF has been launched. The Claymore/Mac Global Solar Energy Index (TAN) debuted on April 15, and has lured plenty of interest. Steve Gelsi for MarketWatch says this has been the second-fastest growing ETF from Claymore thus far. The TAN index invests in 25 companies chosen under the MAC Global Energy Index. The fund is up 0.2% since its launch.

The one hindrance to hedging is that the people who need the hedge most might be among the least likely to actually have the cash on hand to do it. And then there's the matter of the tax bill if a profit is made.

You can't forget the volatility of the energy market, either. It's prone to wild swings in either directions, and some suspect it's a bubble that's ready to burst.

This feeding frenzy in energy ETFs means that the more people who buy, the more the price goes up. It's hard to know where the speculation on rising prices ends and natural demand begins.

But if you look throughout history, whenever there's been a major bull trend, people will inevitably say it's a bubble. That may very well be the case with oil, too. But it could also go up another 50%-100% before that happens.

Don't fight the trend. But have your stop loss in place if the bubble does burst.

Other funds that trade energy futures are:

• United States Oil (USO), up 32.8% year-to-date
• United States Gasoline (UGA), up 17.3% since Feb. 28 inception

Now Is It Time to Invest in Financial ETFs?

Everyone's looking for signs that the markets have rebounded and some stocks are at rock-bottom prices, but does that mean it's a good idea to get in on financial stocks and exchange traded funds (ETFs) right now?

Matt Krantz for USA Today says that the recent history of financials shouldn't mar your opinion of them too much. The problem now, of course, is calling the bottom. You can never know if the problem is over, or the extent of it, until some time passes.

Krantz suggests some ETFs that aren't 100% focused on financials. For example, the Vanguard Value (VTV) is 27% financial. If the crisis has hit bottom, you could stand to benefit from any recovery. If it worsens, your entire portfolio won't be sunk, as the fund is also allocated in energy, health care and industrials.

Year-to-date, this fund is down 3%.

We say: pack up the crystal ball.

The surest way to protect yourself is by firmly sticking to your investment plan. Don't allow thought, hope, emotion or speculation to cloud your decision-making. Low prices are very tempting, but if a fund, be it a financial ETF or something else, is not above its 200-day moving average, keep an eye on it but pass it by until it does.

Instead of wondering if there's a turnaround in a certain sector and rolling the dice, why not just be in those areas that are already performing?

Green ETF Marketplace In a Growth Spurt

When it comes to exchange traded funds(ETFs), is it in style to be green?

The clean energy market is growing faster than ever, and fund companies are right on the  money, launching so-called green funds. Some say that being green means being too narrow, too focused and just plain volatile.

Claymore S&P Global Water Fund (CGW) has been criticized for being too focused on small companies within a narrow sector. The fund is down 5.3% year-to-date. Likewise, the solar energy ETFs that have hit the market can also take the narrow path, with both the Claymore/Mac Global Solar Energy Index (TAN) and the Market Vectors Solar Energy (KWT) offering similar solar exposure, with the same expense ratios.

As Gary Gordon on ETF Expert  points out that, by definition, a sector fund is supposed to be concentrated. And as the awareness grows, the number and selection of funds will, too. That's the beauty of ETFs - you can pick and choose what works for you. It's been a rough year so far for this sector, but many are feeling optimistic about the long-term prospects as concern about global warming gathers steam.

Just be sure not to have your portfolio overweight in a particular sector, and always keep an eye on those areas that are performing. Protect yourself by not getting in until the 200-day moving average has been crossed and get back out when it drops below that line or 8% off its high.

Other green ETFs include:

• First Trust NASDAQ Clean Edge (QCLN), down 23.7% year-to-date
• Market Vectors Environmental Services (EVX), up 0.4% year-to-date

If Commodity ETF Bubble Bursts, Your Strategy Can Be Used As a Flotation Device

Market turmoil is leading to more and more investors turning to agriculture ETFs and exchange traded notes (ETNs), reports Hannah Glover for Ignites.

Especially in places such as China and India, a rising middle class is using that extra cash to splurge on more food, cars and other consumer goods. But many are wondering, too, if agriculture is going to be the next big bubble to burst.

Bubble or not, you can protect yourself on the downside by watching the trend lines. When your holding drops below its 200-day moving average or 8% off its high, it's time to let it go.

Has the Bottom Arrived for Financial ETFs?

Are financial exchange traded funds (ETFs) turning the corner?

Steve Halpern for Blogging Stocks reports that the Financial Select Sector SPDR (XLF) has barely fallen since the Bear Stearns (BSC) collapse. In fact, the fund is up 15.9% since the collapse. The iShares Dow Jones US Broker-Dealers (IAI) is up 21.8% since the collapse.

The editor of the Oxford Club, Louis Basenese, feels that when the bad news keeps coming, but prices don't head notably south, the bottom is near.

Basenese also feels that downside may be protected because the Fed bailed out Bear Stearns, which in turn, put a safety net on the sector.  Consider the last time XLF bottomed out: March 2003 and gave back 113% to those brave souls, with dividends over the next four years.

These funds are sitting below their trend lines (the 200-day moving average). If you're really itching to get in, these funds are above their 50-day averages. Use that as your sell point instead.

Government Tax Cuts on Stocks Make China ETFs Soar

China's exchange traded funds (ETFs) are making a big rally today after the government lowered taxes on stock transactions.

The share-trading stamp tax was cut by the government from 0.1% from 0.3%, reports John Spence for Market Watch. The move is viewed as an effort to give the Chinese stock market a shot in the arm. After the cut was made, some of the Chinese ETFs shot up by as much as 6.8% midday.

China's exchange traded funds (ETFs) have had a rocky year, but could the economy have turned a corner?

Tony Sagami for Money and Markets reports that the country's gross domestic product for 2007 rose 11.9%, ahead of the 11.4% projections. It's the fastest growth in 13 years.

China definitely has some political and social obstacles to overcome: its poor environmental and human rights records, the PR disaster of the Beijing Olympic Games and riots in Tibet. But Sagami says that when it comes to the Chinese economy, things are looking up.

Retail sales rose by 20.2% in the first two months of this year. There has also been a 33.8% increase in auto sales, and demand for luxury vehicles is expected to grow between 40%-45% this year. The trade surplus grew by $41 billion in the first quarter, as well, so China isn't hurting from any U.S. slowdown yet.

Foreign investment seems to be pouring into China, as well: in the first quarter, it increased 61.3%.

Retail sales are up, foreign investment is flowing, and the Chinese trade surplus seems to be unaffected by a U.S. economic slowdown. China is actually the second largest economy when measured by purchasing power.

Sagami suggests that buying China on the dips can be a profitable move for an investor to make. We would wait until this fund crosses above its trend line (200-day moving average) before diving in.

It's been a rough few months for these funds. Will the tax rate cut help sustain today's momentum?

• iShares FTSE/Xinhua China 25 Index (FXI), down 12.9% year-to-date
• PowerShares Golden Dragon Halter USX China (PGJ), down 20.2% year-to-date
• SPDR S&P China (GXC), down 15.5% year-to-date

Using the Moving Average When Investing In ETFs

Some investors want to use exchange traded funds (ETFs) to exploit short-term movements in the markets.

Loren Fleckenstein for Trading Markets gives a primer on using 10-day and 30-day moving averages and the crossovers as a signal of a trend change.

The crossover occurs when a shorter moving average (the 10 day, in this case) traverses the longer moving average. But Fleckenstein says this information shouldn't be considered alone. Instead, consider price breakouts and volume as confirmation of a trend shift.

One example can be seen in the chart above: while the 10-day line is well above the 30-day, volume fell - an indication that the market wasn't convinced that there was an uptrend.

This strategy differs from how we manage money. We let each sector, asset class and global region identify its own trend and when something crosses above its 200-day moving average, we consider that the time to buy.

With regard to volatility, there's nothing magical about the 200-day moving average. If the markets are rocking and rolling, you can consider the 50-day moving average. Bear in mind that it will be more sensitive to movements and it could mean you'll be trading more.

Some might find a 10- or 30-day moving average is a bit too short-term for their tastes. It would require much more discipline, and for the average investor, it wouldn't work.

Blue Chip ETFs or Not, Stick to the Strategy

According to some, opportunity is knocking for blue-chip stocks and the exchange traded funds (ETFs) that count them as components.

The S&P is around 14% undervalued right now, according to Morningstar Analyst Jeffry Ptak. Broader indexes and "blue-chippy" stocks are where the excitement may be at, reports Chuck Jaffe for MarketWatch. Ptak feels that investors could feel more comfortable going after broad indexes instead of focusing on thin, volatile bits of the market.

Whatever your feeling, when you make investment decisions, stick to a plan such as using the 200-day moving average. If short-term is more your style, look at the 50-day moving average and sell when it drops below or 8% off its high.

Blue-chip opportunities:

• Dow Diamonds (DIA)
• SPDRs (SPY)
• Rydex Russell Top 50 (XLG)

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

What Type Of ETF Investor Are You?

When it comes to trading your exchange traded funds (ETFs) are you a mechanical type, or a discretionary?

A discretionary trader uses experience and judgments to make trading decisions, with a documented trading plan set with rules to guide or bind their decisions. When it comes time to put the plan into action, they will not only use intuition for the final decision, they also use knowledge of current market conditions.

Rob Davenport for Trading Markets says a mechanical trader is one who has precise rules that dictate every trade they make. They do not care about anything going on in the market, unless it is part of their rules base. A systematic trader takes every trade and pays no mind to intuition, judgment or experience.

Our strategy is to stick to our plan, and not let emotions get involved, much like a systematic trader. As Davenport says, emotions can be a demon when it comes to your trading. It can be just about impossible to eliminate them, but neutralizing them will serve any trader well.

Utility ETFs Can Have a Home In Long-Term Portfolios

The utility sector is represented by a few exchange traded funds (ETFs), and in volatile markets, they've acted as a good hideout spot.

Over the last five years, utility ETFs such as the iShares Dow Jones U.S. Utilities Fund (IDU) or the Utilities Select Sector SPDR (XLU) have seen wonderful price appreciations of about 100%, reports Billy Fisher for The Street. In 2007, the ETFs were up 13.5% and 16.3% respectively. This year, they've faltered some: IDU is down 6.9%, while XLU is down 6.2%.

These ETFs tout dividend yields as well, between 2.5% and 3.0%. The recent market swings have proven these ETFs to be a great place to be for shelter. Will other market sectors start to trend above these ETFs in the coming quarters?

Industry insiders believe that utility stocks are overvalued right now. Many are not bullish in utilities, but say they do have a place in a long-term portfolio. Average earnings growth and stability are traits that give utility ETFs some added attraction.

Both of these utility ETFs are far below their trend lines - both the 50-day and 200-day moving averages. Hold off until they cross over, then implement your exit strategy if they head south again.

It's Tempting to Panic, ETF Investors, But Resist the Urge

We're only human: in the midst of all the ups and downs of the market in recent months, it's natural to consider doing something rash, like dumping all of your exchange traded funds (ETFs) or chasing trends out of sheer desperation.

But don't!

The U.S. may be in a recession, the Federal Reserve keeps cutting rates to avoid one, credit is on the verge of collapse and a major investment bank is on the verge of collapse, but really - try to stay calm. Easier said than done, we know.

But many financial advisors agree that the wrong move is to panic and abandon the stock market or to sell stocks and go running to bonds or start stuffing their cash between the mattresses, reports Alina Tugend for The New York Times.

Just as you don't want to get overly excited about market performance and make any decisions based on the hottest new trend that will allow you to retire at 35, there's the flip side: you don't want to make decisions based on any of the doomsday scenarios you've been cooking up in your head.

Stay cool, have a strategy. Buy when a fund goes above its 200-day moving average and sell when it drops below it or comes down 8% off its high.

Simple as that.

Now, breathe!

Homebuilders ETFs Stage a Turnaround

Two exchange traded funds (ETFs) in one of last year's weakest sectors, home construction, are beginning to show renewed vigor.

In the last two weeks, both SPDR S&P Homebuilders (XHB) and iShares Dow Jones US Home Construction (ITB) are up 19.7% and 16.6%, respectively. Last year, XHB was down 48.1%, while ITB lost 58.4%.

The funds got another boost this morning when a trade group reported that existing home sales in the United States rose unexpectedly in February, by 2%, reports Wanfeng Zhou for Thomson Financial.

This doesn't mean the sector is fixed, though - sentiment is still near historic lows this month, according to the National Association of Home Builders. We're still in the midst of the worst housing slump since the Depression, and it's keeping buyers and financing in short supply.

The rate cuts by the Federal Reserve are giving a lift to the sector, though. And the House Financial Services Committee Chairman Barney Frank has announced a proposal for legislation to allow the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. If the program goes through, it would allow the FHA to provide up to $300 billion in new guarantees that would help refinance at-risk borrowers into viable mortgages.

If you're ready to do some bottom fishing, wait until XHB crosses its 200-day moving average and set an 8% stop loss.

ETF Investing in Volatile Times

If you've got nervous hands as your exchange traded funds (ETFs) swing up one day and down the next, the best thing you could do is to just sit on them.

Matthew Hougan for Index Universe has a thought  for increased market turbulence: maybe it's time to recalibrate the risk/reward balance in your portfolio? If the world's economy has become more risky on a long-term basis, should that be factored in when you're doing asset allocation?

When the markets are volatile, we think it's best to wait it out if you have a long-term buy and hold strategy. Always look before you leap to be sure you're not just getting swept up in the frenzy.

In the big picture, Hougan predicts that we'll continue to see a shift of assets into commodities that will eventually create a bubble. He cites two examples: when the tech bubble burst in 2001, assets went to housing. When that burst last year, assets went to commodities. Will Hougan prove to be correct? Time will tell. After all, it's all speculation, and in asking ten different experts, you'd likely get ten different opinions.

What if I'm a trader?

Many ETF investors and financial advisors (like us) have taken advantage of trends that have developed in sectors. Increasing allocation to these areas work well as long as the trend remains intact. However, there have always been and will always be bubbles, and the only sure way you can protect yourself is to have an exit strategy always at the ready. If an ETF you're holding - whether it's commodities or something else - drops below its trend line (200-day moving average) or falls 8% off its high, let it go, no questions asked.

Financial ETFs Look Different In the Afternoon

It just goes to show: these days, exchange traded funds (ETFs) and the market can turn on a dime, and today was a perfect case in point.

This morning, things kicked off nicely off yesterday's high. Financials were up, the price of oil was down. Investors were still aglow with the news that the Federal Reserve cut interest rates by three-fourths of a percent.

But it was a blink-and-you'll-miss-it turnaround: the Dow Jones industrial average fell nearly 300 points, giving back much of its 420 points gained on Tuesday, reports Tim Paradis for the Associated Press.

The metals ETFs remained down: iShares Silver Trust (SLV) lost 5.8%, while streetTRACKS Gold Shares (GLD) declined 3.6%. Agriculture also finished lower: PowerShares DB Agriculture (DBA) lost 2.3%, while Market Vectors Global Agribusiness (MOO) declined 6.1%.

But financials, which were the early stars this morning, eventually lost steam and turned south again:

• Financial Select Sector SPDR (XLF), down 2.6%
• Regional Bank HOLDRs (RKH), down 1.1%
• iShares Dow Jones US Broker-Dealers (IAI), down 3.8%

The moral here is to not get swept up in the frenzy and keep emotions out of it. Strong performance is good, but it needs to be strong over a period of time - not just a day or two. Chasing performance can only turn into a fruitless and losing game of whack-a-mole.

Wait - Financial ETFs Are Up and Commodities Are Down? What's Wrong With This Picture?

Have we entered a bizarro exchange traded fund (ETF) world?

First, financials and internet are staging a turnaround for the better. Now commodities are turning lower after being on a bull run in recent months. The shift owes much to the Federal Reserve's latest interest rate cut - it's spurred investors to take some money out of commodities and ever-so-cautiously put some back into equities.

As a result, gold has fallen by its largest amount since June 2006, report Pham-Duy Nguyen and Millie Munshi for Bloomberg. The price dropped to $946.20, after hitting a record $1,033.90 on March 17. Declines were also seen in silver, sugar, wheat and oil.

The price of oil, which had been posting new records every day recently, suddenly dipped lower after demand for both oil and gas weakened, reports John Wilen for the Associated Press. Prices at the pump stepped back for the third straight day (insert a sigh of relief here).

Investors had been wondering when this would happen, since the rising prices didn't reflect the reality that supplies were increasing and demand was dropping off.

That being said, prices are still stratospheric: oil was $104.96 a barrel, while the national average for a gallon of gas was $3.27. Analysts are still saying the price could go anywhere from $3.50 to $4 a gallon by spring.

Agriculture ETFs are hurting in intraday trading: PowerShares DB Agriculture (DBA) was down 4.5% intraday, while Market Vectors Global Agribusiness (MOO) was 4.8% lower.

We recently held DBA for our clients, but finally sold it when it dipped 8% off its high - we stuck to our plan. It's up 18.1% year-to-date, while MOO is down 3.9% year-to-date.

iShares COMEX Gold Trust (IAU) and streetTRACKS Gold Shares (GLD) are down more than 3% intraday. Market Vectors Gold Miners (GDX) is down more than 5%, and iShares Silver Trust (SLV) is more than 6% lower intraday.

Will this turn of events continue, or will this new market optimism be short-lived?

Agriculture ETFs Are Mooooo-vin' Right Along

The agriculture sector was once a real yawner, but these days, exchange traded funds (ETFs) are livening things up.

Market Vectors Global Agribusiness (MOO) is up 36.6% since its Sept. 5 launch, and it was up nearly 50% at one point. PowerShares DB Agriculture (DBA) is up a whopping 72% since its Jan. 5 inception.

The two funds have their differences: DBA invests in futures contracts for wheat, corn, soybeans and sugar. It's more actively traded and more liquid than MOO, which invests in agriculture companies around the world, reports 24/7 Wall Street for MarketWatch.

While commodities are hot right now, just keep in mind that what goes up must eventually come back down. Make sure you have your exit strategy in place if this sector shows signs of a turnaround.

For full disclosure, some of Tom Lydon's clients own shares of DBA.

Even In These Markets, You Can Still Find ETF Movers and Shakers

Yesterday, the markets delivered outstanding performance and some exchange traded funds (ETFs) finished up in the double digits.

But one good day doesn't mean we're out of the slump yet. It's still time to take a defensive stance with your portfolio and make sure you've got that exit strategy firmly in place. But while it seems as though everything is in a downward spiral, but there are still some buying opportunities, believe it or not.

At our asset management firm, we track a list of about 100 ETFs and review it daily to see how things are performing and if there are any trends emerging. Of particular interest to us is which funds are above their 200-day moving averages. We never buy something sitting below that line.

Once we own an ETF, we keep an eye on it to make sure it's still above that line and continuing to perform. Once it dips below the trend line or falls 8% off its high, we sell. No ifs, ands or buts. A sell strategy from which emotions are entirely removed is the only kind that will benefit any investor.

It can be hard to let go of a little mover and shaker you've always had that soft spot for, but if you want to protect your money, you have to. It's like your parents always said when they were grounding you every other week: "This hurts me more than it hurts you." But sometimes it has to be done for everyone's good.

There are no guarantees that when you let a fund go, it's not going to turn around and deliver the numbers again. But that doesn't mean it won't, either. It's exactly why you have to remain as stoic as possible and stick to the plan and rationalize nothing.

There are a number of ETFs sitting well above their trend lines. Take a look at them, keep an eye on them and if they fit into your overall portfolio and are moving in an overall upward direction, they could be well worth considering:

• iShares MSCI Taiwan Index (EWT), 6.2% above
• Claymore/BNY BRIC (EEB), 5.9% above
• iShares S&P Latin America 40 Index (ILF), 10.1% above
• iShares MSCI Brazil Index (EWZ), 13.7% above
• Market Vectors Russia (RSX), 8.1% above
• iShares S&P GSSI Natural Resources (IGE), 6.8% above
• PowerShares DB Commodity Index Tracking Fund (DBC), 27.7% above
• iShares S&P GSCI Commodity-Indexed Trust (GSG), 23.9% above
• United States Oil Fund (USO), 28.3% above
• iShares Dow Jones US Oil & Gas Exploration Index (IEO), 14.4% above
• Energy Select Sector SPDR (XLE), 6.7% above
• iShares Dow Jones US Energy (IYE), 6% above
• Market Vectors Steel (SLX), 14.4% above
• iShares COMEX Gold Trust (IAU), 21.2% above
• streetTRACKS Gold Shares (GLD), 21.1% above
• Market Vectors Gold Miners (GDX), 16.5% above
• iShares Silver Trust (SLV), 30.3% above
• SPDR S&P Metals & Mining (XME), 11.5% above
• PowerShares DB Base Metals (DBB), 8.5% above
• PowerShares DB Agriculture (DBA), 30.8% above
• Market Vectors Global Agribusiness (MOO), 11.4% above
• CurrencyShares Euro Trust (FXE), 6.9% above
• CurrencyShares Swiss Franc Trust (FXF), 10.2% above
• CurrencyShares Japanese Yen Trust (FXY), 8.5% above

For full disclosure, some of Tom Lydon's clients own shares of EWT, IEO, DBB and DBA.
Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Short ETFs Can Help If Handled With Care

In a down market, short exchange traded funds (ETFs) gain popularity, but they need to be used with caution and education.

ProShares UltraShort QQQ (QID) is one of the more popular ETFs of this kind and it tracks the Nasdaq 100, while returning twice its inverse performance. The ETF has $1 billion in assets, and returned 38.8% year-to-date, but it is against a -5.1% return over the past year, says Jesse Emspak for Investor's Business Daily. It's benefited from the decline of the Nasdaq, which is 2.3% below its Jan. 22 low.

Among the strongest of performers is the ProShares UltraShort Semiconductor (SSG) which has given investors 39.5% year-to-date, with a one-year return of 10.4%. The semiconductor industry has been ailing so far this year.

Investors should consider two things when considering short ETFs:

1) Markets tend to go up over the long run, so shorting ETFs are not a long-term investment.

2) There is a strict limit on the gain any short can make. The value of the index should not go below zero.

UltraShorts can make a bad day in a particular sector - this morning's financials, for example - a good one for investors who hold short funds, says Will Swarts for Smart Money. ProShares says their Ultra funds family isn't targeted to the "mom and pop investors."

But for sophisticated investors, ProShares Chief Executive Michael Sapir says they can be a great way to capitalize.

Making sector calls can work, but just be sure you have your exit strategy in place before you get involved. We watch the 200-day moving average and put an 8% stop-loss on each ETF.

Do's And Don'ts With ETFs In An Uncertain Market

When the market is rocky, it can be difficult to continue moving your exchange traded fund (ETF) portfolio in a strong direction.

The market direction is unclear and investors are left to fend for themselves. Jonathon Burton for MarketWatch has a few tips on how to weather bad markets and how to stay focused on your investment goals.

• Don't get distracted by well-intentioned friends, the media or benchmark performance.
• Keep perspective on long-range goals and plans.
• Make sure your portfolio fits your personality and objectives.
• Use downturns to your advantage and be a prudent bargain hunter.
• Do not pay attention to your monthly statements. Time in the market is much more profitable than timing the market.
• Stay diversified.
• Do not speculate.
• Keep your portfolio in balance.

We would like to add that if you have an exit strategy, you're set. If you have a plan and you're sticking to it, you'll get out before too much damage is done and focus on those areas that are performing well - and they are out there. When a fund drops below its trend line (200-day moving average) or 8% off its high, it's time to jump ship.

If the Bottom Is In Sight, Is It Time to Snap Up ETF Bargains?

New existing home sales numbers are in, and home construction and real estate exchange traded funds (ETFs) went higher on investors' hopes that the slump is approaching the bottom.

Martin Crutsinger for the Associated Press reports that existing home sales dropped to a nine-year low, and the median price for a home dropped for the fifth consecutive month.

The National Associated of Realtors said that single-family home sales and condominiums dropped by 0.4%, to 4.89 million units. The media price for a home sold in January is $201,000, down 4.6% from a year ago. Sales dropped everywhere but in the Midwest, where they actually rose 3.4%.

How low can we go? That's what Wall Street was wondering after the report was issued, and the general mood was optimistic that a rebound could be coming later this year, says Joe Bel Bruno for the Associated Press.

But be careful: the market has been seeing some quick swings as investors sense a bottom and buy, then quickly cash out when it becomes apparent that it isn't the case. We suggest, as usual, waiting for a fund to move above its trend line before diving in.

Some ETFs that have inched higher today on the housing news are:

• iShares Dow Jones US Real Estate (IYR), down 2.9% year-to-date
• iShares Dow Jones US Home Construction (ITB), up 5.9% year-to-date
• SPDR S&P Homebuilders (XHB), up 6% year-to-date

Understanding the Anatomy of a Crash Can Help With ETF Investments

Today's market environment can be confusing - one minute market averages and exchange traded funds (ETFs) are at all-time highs, the next they're heading for the bottom.

The volatile market has created a lot of pain and uncertainty, and many are left wondering if a market crash is looming or happening right now.

Bill Barker for The Motley Fool ponders this thought and thinks back to 1934, when Benjamin Graham, the father, grandfather, founder, and creator of securities analysis came up with these three forces behind a market crash:

 

1. The manipulation of stocks. Since the advent of more market regulation by the federal government, with the creation of the Securities and Exchange Commission (SEC) in 1934, there's less potential today for manipulation. New regulations on the books keep most manipulation relegated to the micro-caps.
2. Lending money  to buy stocks. This issue is still a problem today. Excessive use of margin contributed to the market collapse earlier this decade and in 1929. A record high of $381 billion in margin debt was recorded in July.
3. Excessive optimism. We've got that, and current price-to-earnings (P/E) ratios reflect it. Some stocks are squarely in range of normal P/Es and sport record amounts of cash on their balance sheets and continue to replenish reserves even as they re-purchase shares.

The markets are unpredictable, but if you stick to your investment strategy and subtract emotions from the equation, you will be equipped to handle the ride.

UltraShort S&P ETF Doubles Up in Downward Trend

Short exchange traded funds (ETFs) are meant to head up as the market heads south - something it seems to have been doing a lot of lately.

The ProShares UltraShort S&P 500 (SDS) and Rydex Inverse 2x S&P 500 ETF are (RSW) no exception, especially as they are designed to deliver twice the opposite performance of its underlying index. The S&P has had some upswings in the last several months, but overall, it's on a downward trend:

• In the last month, it's lost 1.7%
• Over three months, it's down 7.5%
• Year-to-date, it has lost 8.1%

Mike Paulenoff at MPTrader predicts that the SDS should climb some more, and he's using it to hedge a few long positions.

Although they are good options for investors looking to continue making gains while the market is on a downward trend, it's always wise to be aware of the risks involved when it comes to short ETFs. The potential to win big is there, but you could crash and burn, too, if caution isn't exercised. Always make sure they are right for your portfolio.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Mexico Will Put Billions Into Infrastructure - ETF Might Say 'Ole!'

Mexico will soon start pouring money into its infrastructure, benefiting its economy and exchange traded funds (ETFs).

On Monday, Doug Krizner and Dan Grech for Marketplace report, President Felipe Calderon will make his first presidential visit to the United States. He's planning to visit Mexican communities in Los Angeles, Chicago, Boston and New York in an effort to chart a more independent course for Mexico's economy.

He's even more motivated to do that now that the United States is headed for a recession.

As we said yesterday, countries tend to pour money into improving the infrastructure when the economy gets tough. President Calderon has budgeted $25 billion to build highways, bridges and other projects to ensure that his country doesn't have to depend on the U.S. economy as much.

So far, they appear to be on the right track.

The Mexican peso is strengthening: it rose to a three-month high on Friday after investors bet that the Federal Reserve will cut its benchmark rate in March. Investors who believe the peso will continue its upward trend can hedge the falling dollar with the CurrencyShares Mexican Peso Trust (FXM).

Mexico's Central Bank cut projections for growth in 2008 by nearly a percentage point. The iShares MSCI Mexico (EWW), however, is up 9.8% year-to-date. Since Jan. 22, it's been up 7.5%. The fund is currently residing below its trend line, though. If President Calderon's plan to boost his country's infrastructure is a success, it could make this fund one to keep an eye on.

Asian ETFs Are At a Crossroads

Risk aversion with exchange traded funds (ETFs) appears to be oh-so-stylish right now.

That's what Michael Kahn for Barron's is noticing. Investors are pushing aside anything that isn't blue chip, regardless of its asset class. This has wreaked havoc in Asia.

And while Asia might not look so hot in the short-term, the long-term growth potential in China, India and other emerging markets is still there. But, Kahn says, things might get worse before they begin to get better.

He cautions that the current market conditions are not the time to try and pick bottoms, but instead, look at the relative performance. Although it has seen big price declines, the Shanghai index is still beating the United States. This is also true of the iShares MSCI Emerging Markets Index (EEM), as shown in the chart below.

When this market turmoil nears its end and you're considering going bargain hunting, these areas of the world might be worth some investigation.

Advisors Lay Out Their ETF Strategies

As stocks and exchange traded funds (ETFs) tumbled on Wall Street on Tuesday, the phone calls began in Orange County financial managers' offices. The question on everyone's lips was, "Now what?"

Mary Ann Milbourne for OC Register polled Orange County financial advisors and got the scoop.

In summary, if you sell now, you may be getting out at the bottom, but it could get worse. Take a piece off the table, especially in your more volatile positions. Global Trends Investments (our management company) has had a large cash position since early December as most major market indicators and their corresponding ETFs have hit their sell points.

Setting stop-loss points for equity positions, either 8% off the recent high or if the holding declines below its 200-day moving average. Currently, this puts most funds in a sell mode. In an effort to not sell at the bottom, consider selling one-third of equity holdings and buy when the stock goes back up above its 200-day moving average.

Not only will this help emotionally, it does something to help avoid a larger impact if the markets continue to decline.

But what if you missed the 8% drop, and you're down much further than that? The question was posed to us by a reader this weekend in response to this post.

Missing the sell point creates the conundrum above. That's when I recommend the following:

• Sell 1/3 of your equity holdings and focus on the most aggressive positions. Some of these might be the top performers in 2007. While they've declined 20-30%, they are currently 10-15% below their 200-day moving averages.
• If those holdings decline by another 5-7%, consider selling another third.
• Keep an eye on the 200-day average of these positions. As the trend lines continue to decline, there will be an excellent buying opportunity in the future when the markets eventually rebound.

Retail, Homebuilders ETFs See The Light

SPDR S&P Homebuilders (XHB) and Retail HOLDRs (RTH) are two of the few exchange traded funds (ETFs) seeing positive numbers these days.

Yesterday, XHB was up 8.5% and is up over 4% at the time of this post. Its one-week performance is 14.2% (not counting today). RTH was up 3.6% yesterday, is up today and over one-week it's up 5.8%.

This is especially interesting, considering these are two of the sectors that have taken a beating. The holiday season was one last hope for a retail rebound, with Wall Street jittery about consumer spending and the overall well-being of the economy. The high energy prices and falling home values certainly didn't help more wallets to open. The current down trend didn't exactly foretell any good news emerging from these two sectors.

As the housing slump is bending to new lows, it could be a sign of relief for investors in XHB. Some analysts are expecting this mortgage mess and slowdown to rival that of the late '70s to the '80s.

For those investors still building hope on XHB, remember to have a disciplined sell strategy, and enjoy the positive numbers showing now. Homebuilding and real estate sectors have been down as the building of new homes and housing starts were down 8%. The good news is, whatever goes down must eventually come back up.

ETF Investors Feel Relief at the End of a Long Week

Investors in stocks and exchange traded funds (ETFs) are probably shouting: "TGIO!" That's "Thank God It's Over." It's been a long week, and today wasn't much better.

This morning, things kicked off looking hopeful. Madlen Read for the Associated Press reports that while the Dow Jones industrial average was up more than 180 points, by afternoon it had slid back to 128. The index finally ended the week down 4%. The S&P 500 had a tough week, too: it was the biggest one-week loss for the index since July 2002, and it's currently at 16-month lows. It ended down 5.4% for the week. The Nasdaq closed the week down 3.6%.

The week started out bad, but then it only continued to get worse as economic and housing reports poured in. Fed Chairman Ben Bernanke's testimony lifted hopes that an economic stimulus package might be what the country needs, but the markets obviously didn't agree today. And the fact that the Fed is concerned made the outlook more grim.

Once again, we will reiterate our sell strategy. It's been bumpy and if you haven't started protecting yourself from yet more losses, it's time to think about doing so.

Another Rough Day; Save Your Portfolio By Having an ETF Sell Strategy

The markets wrapped up another ugly day for stocks and exchange traded funds (ETFs) this afternoon.

The Dow Jones industrial average fell more than 2%, says Tim Paradis of the Associated Press, and it was down more than 300 points. The Nasdaq fell 1.9% and the S&P 500 dropped 2.9%.

Things today got off to a decent start, but that was quickly unraveled after the Philadelphia Federal Reserve said its survey of regional manufacturing activity registered at -20.9 from a revised reading of -1.6 in December.

That news was only followed by more bad news from the homebuilding and real estate sectors: housing starts were down and the building of new homes dropped 8% last month.

Now is a good time to review your sell strategy and make sure that you are sticking to your plan. It can be hard in times like these to keep your emotions from entering into the equation, but it's one of the keys to being a successful investor.

We're living in a different world now than the one we knew in 2007. Many of last year's top performers are suddenly losing ground. If you're holding on to those ETFs and remembering the good times, review them and see if it's time to implement that exit strategy.

What's Your ETF Sell Strategy?

The S&P has not had a 10% correction in many months....until today.

Joe Bel Bruno for the Associated Press reports that persistent fears of a recession, weak retail sales figures and disappointing results from Citigroup sent the markets plunging.

What's an investor to do? Where most well-known market index ETFs such as the Dow, S&P and Nasdaq have dropped more than 10% off of their recent highs, some international and sector-specific ETFs have corrected more than 20%.

This could be a normal correction and the market could catch up to where it left off a few months ago. But what if it doesn't? What if the doom and gloom pasted all over CNBC is correct? Here are three rules that we continue to remind investors about that should keep most of us out of trouble:

1. Maintain an 8% stop-loss on your ETFs.
2. Keep an eye on the trend. If your ETF declines below its 50-day average, that's not a good sign. If the same ETF declines below its 200-day average, sell.
3. Don't chase markets that are too hot. The last time many world markets and industry groups collectively hit news highs was in 2000. You know what happened then. Keep your emotions in check.

Are Your ETFs Keeping You on Track for Retirement?

Quick: will your exchange traded fund (ETF) portfolio take you into your golden years?

Not sure? Yahoo! has a nifty calculator you can use to see if you're on track.

Be aware, though, that saving for retirement isn't just about making money - it's about keeping what you've earned, too. The best way to do that is to have a discipline that you can stick to.

The Sleeping Bear And ETFs

One of the puzzles for investors of exchange traded funds (ETFs) and other securities to solve is figuring out when the bear is going into hibernation, and when it's coming back out. Keeping an eye on trends can give an assist when you're trying to sort it out.

Roger Nusbaum explains that financial stocks are a determinant of the equity markets overall, and their fate is on a downward curve as of now. When the market is below 200-day moving average a problem is signaling a demand for stocks, and demand problems are a sign for a defensive stance.

When the market is below its 200-day moving average, it signals a problem with demand for stocks and demand problems are a sign for taking a defensive stance.

Following Trends With ETFs

The exchange traded fund (ETF) winner's circle for 2008 has been assembled and examined by many.

Jonathon Burton for MarketWatch on Fox Business reports that Will Danoff, manager of Fidelity Contrafund, and Bill Gross, chief investment officer at Pimco, have their momentum-based expectations for ETFs in 2008.

Let's take a look:

Energy, materials and utilities were three of the S&P sectors that had greatest price appreciation in 2007. For exposure to those areas, take a look at Energy Select SPDR (XLE) or Vanguard Energy (VDE). For materials exposure: Materials Select Sector SPDR (XLB) or iShares Dow Jones US Basic Materials (IYM). For utilities, there is Utilities Select Sector SPDR (XLU) and iShares Dow Jones US Utilities (IDU).

Sam Stovall, chief investment strategist at Standard & Poor's, reminds us that momentum can turn on a dime. He cites the health care sector in 1991 as an example. It was up 50% for that year, but the following year it was down 19%.

Whatever trend you're following, just be sure to take a disciplined approach and remember to follow through with your strategy.

Make Your ETF Resolutions, and Stick to 'Em

Some people hate making resolutions (especially because some of you have been writing variations on the "get in shape" theme since college, but this year, you're serious. We know you are.), but now is as good a time as any to evaluate where you stand with your exchange traded funds (ETFs) and make your resolutions for next year.

May we suggest a few?

• Resolve to stick to your discipline. We know, last year was rocky. It was hard not to get emotional, wasn't it? We can't predict the future, so we don't know what's in store for 2008. Will it be similarly bumpy? Who knows? One way to avoid pulling every last hair out of your head in frustration is to have a plan and adhere to it no matter what.
• Resolve to pay attention to the news. Political upheaval, major weather events and leadership changes are among the things that can indirectly affect your holdings. Don't just isolate yourself to the business section.
• Resolve to pay attention to your investments. Are you coming up on a major life change, such as having children or entering the homestretch before retirement? Look at your portfolio and make sure it's still working for you.
• Resolve not to invest in something simply because it's "hot." That's the best way to get burned. Invest because it fits your needs, interests and your portfolio.
• Resolve to read ETFTrends every day for the latest ETF news. Well, of course we were going to suggest that!