I’d love to sit here and tell you that the recession is over and that the U.S. economy is out of the woods, but that’s simply not the case. Be that as it may, you don’t want to fight the tape. It can take Wall Street a while to catch on to certain things, so your best bet is to play the trends.
SPDR S&P Retail ETF (XRT)
It seems Wall Street is jumping off the retail stock bandwagon. The sector has outperformed the market for most of the year, but is now underperforming recent moves in the major averages. However, I think Wall Street got off at the wrong time.
Now, I believe a double-dip recession is in our future, or at least stagnation, but not before Q3, and perhaps not until next year. And retailers should continue to beat expectations in the meantime.
Recent ChangeWave Research data show a strong rebound for consumer spending in the second quarter, and this will buoy earnings for many retailers.
The way to play this is with SPDR S&P Retail ETF (XRT) calls. Look for calls that will reflect Q2 earnings that come out in July and August. After that, I would stay away.
ProShares UltraShort Real Estate (SRS)
Everyone knows commercial real estate is in the tank, but the full impact of the housing crisis has yet to be felt by the regional banks or real estate investment trusts (REITs). But that day will come.
You can play the continued housing crisis through the ProShares UltraShort Real Estate (SRS), the double inverse ETF that goes up roughly, 2% for every percentage point loss in the Dow Jones Real Estate Index.
And if you’re more of a risk-taker, SRS call options could produce a 40% or more return on a 1% or 2% move down in the underlying index.
One thing to keep in mind, though, is that any position related to the problems in commercial real estate will require a lot of patience.
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