No Bottom Yet
07/07/2006 12:00 am EST
"The sell off that started in early May isn't over yet", says Doug Fabian in hisETF Trader Alert. He makes a compelling case for the actions investors need to take to maximize their portfolio returns until the next market bounce.
"As a result of the continued downtrend,
particularly in big-cap NASDAQ 100 stocks, we are now recommending you buy the
ProFunds UltraShort OTC (USPIX). This is a two-beta
leveraged fund and seeks results that correspond to double the inverse of the
daily performance of the NASDAQ 100 index. If the NASDAQ 100 falls 2%, USPIX
will gain 4%.
"It's my opinion that large-cap technology stocks still have a ways to go before hitting bottom. Taking advantage of this potentially rapid descent in the NASDAQ 100 offers us yet another way to profit from the current market malaise. Given the continued breakdown in the equity markets, it is once again safe to add to all your ETF Trader bear fund positions. We are now 100% invested in the market with leverage, but with leverage comes the possibility that things could turn against us quickly.
"So, how long will we be short? Well, we don't
know for sure, but we may not be short for very long. It may be another week, it
may be ten days, or it may be longer, but we intend to keep riding the downward
wave with inverse leveraged bear mutual funds until conditions dictate
"If our theory of the short-term direction of equities proves correct, we are likely to see the S&P 500 sink below its intraday low of 1,220, which would likely lead to continued heavy selling in the blue chip index. More selling across the board is also highly probable due to the liquidation of stocks from hedge funds, institutional investors, and other big players.
"A likely scenario for covering these positions is that it will happen on a solid down day in the market. This strategy will allow us to maximize the gains we currently have in this service, and it will protect us against a big turnaround day in stocks like we recently witnessed twice in one week."