As the stock market has proved that there is much recovery time needed until things start operating within normal parameters, the exchange traded fund (ETF) rallies that occur every so can be discouraging when they peter out.

There are certain ways that ETF investors can benefit from a rally and there are ways to protect your portfolio and profit as well. Sean Broderick for MarketWatch has five forces that will thwart any rally attempts by the S&P 500, and then how to beat them:

  • The Banking Crisis Lingers On. The International Monetary Fund keeps raising estimates on bank losses, but even its recent estimate of $2.2 trillion in losses is probably way behind the curve. The bottom line is that there could be a lot more dirty laundry the financial tide is going to reveal.
  • Has Real Estate Hit Bottom Yet? Home prices follow income. Incomes are going down, and we facing a deflationary spiral now. We could see both incomes and home prices fall into 2012. We are only halfway back to fair value, and usually prices must fall below fair value, according to the Case-Shiller report. President Barack Obama’s housing plan will not help home prices turn around.
  • Americans Are Unwinding Debt. An “average” unwinding of debt would suck about $300 billion out of the economy. These “unwindings” last for about 10 quarters on average.We’ve been through two quarters of declining consumer spending. Hold on!
  • State Budgets Are Gone. Unlike the federal government, states cannot run deficits when the economy turns down; they must cut spending or raise taxes to balance their budgets. This adds another twist to the vicious downward spiral in consumer spending. Forty-six states in the country are already underwater and more is to come next year.
  • The Slump Is Global. The economic engines of the world — China, Japan, Germany and so on — are misfiring badly. There is no growth engine at the present time to pull faltering economies out of their funks. The “Lost Decade” in Japan may look good compared to what were could be gearing up to go through.

So what is there for an investor to buy in the middle of a crisis? Broderick notes some areas that have demonstrated some strength as of late:

  • PowerShares US Dollar Index Bullish (UUP)
  • SPDR Gold Trust (GLD)
  • Market Vectors Gold Miners ETF (GDX)
  • iShares Silver Trust (SLV)

These four funds are all sitting above their short-term trendlines (50-day moving average).

For full disclosure, some of Tom Lydon’s clients own shares of GLD and SLV.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.