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Use ETFs to Trade the Double Dip

Time to price put options on banking, homebuilder ETFs

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“Use ETFs to Trade the Double Dip” continued.

  • Business Spending/Exports: Sorry, but who cares? Consumers are two thirds of the economy. If we doubled exports it would decrease unemployment by no more than a point or two. Jobs drive the economy, corporate profits and stock multiples.

What to do?

First, I see a stalled and then a declining market. This may take a quarter or two to be evident but be ready for a decline. Before then, I see the market rising to 1400 in the S&P 500 and then the decline begins, maybe sooner. I would not play the short side until the market breaks 1285-1300 in the S&P 500.

Find more option analysis and trading ideas at Options Trading Strategies.

Second, banks have no earnings power and home builders have even less so as a segment they are grossly overvalued. The short plays here are puts on the major ETFs for these segments. Look at the long term — 2012 or longer — on both of these. They may go against you for a while but this is the play when the market wakes up to economic reality. As I mentioned, you get the most leverage with out-of-the-money puts.

Third, there are long plays here. I think a real winner is the “luxury” consumer segment that also caters to folks like you and me. Remember, the mass market for diamonds was created during the depths of the Great Depression. Ralph Lauren is a leader with its wonderful multi-tiered strategy.  Consumers are spending money on that little man on the horse because of real quality and perceived value. Look at yearend calls out-of-the-money, and give yourself a couple of earnings announcements to pop the stock.

Michael Shulman uses simple trading tactics to make solid, profitable investments in falling stocks in his Short-Side Trader service.

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