2 Top Hedges Against Europe’s Collapse

11/29/2011 9:45 am EST

Focus: ETFs

Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

If you’re interested, it’s iime to trade deep into European woes, writes Doug Fabian of ETF Trader.

The news out of Europe keeps getting worse. Over the past few weeks, we’ve seen Eurozone nation bond yields spike to unsustainable levels and new financing schemes get conjured almost out of thin air, and that’s caused equity markets tied to Europe’s fortunes to crater.

I believe that the situation in Europe in general and the Eurozone in particular is going to get markedly worse before it gets any better, and that means we are staring down the barrel of a tremendous tradable opportunity.

To take advantage of what I’m calling the European woe trade, I want you to buy the following two ETFs:

ProShares UltraShort MSCI Emerging Markets (EEV)
EEV is a fund that seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the MSCI Emerging Markets Index. This means that if emerging markets fall 2%, EEV will rise 4%.

The emerging markets have been hit hard due to the threat of a European recession, and as that threat grows, look for the emerging market index to continue to falter (which means EEV will rise).

ProShares UltraShort Oil & Gas (DUG)
DUG is a fund that seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones US Oil & Gas Index. This index is basically a proxy for oil prices, and if Europe’s woes continue, then we’ll undoubtedly see a pullback in crude prices such as we’ve seen in Thursday’s trading.

To protect ourselves on the downside if things don’t go the way we think they will, I want you to place the following stop-loss orders in along with your buy orders:

  • EEV, stop-loss order in at $32
  • DUG, stop-loss order in at $25

As for our current ETF Trader positions, all have jumped out to big gains as a result of the weakness in Europe. As of this writing, the ProShares Short Financials (SEF) is up, as are the ProShares UltraShort MSCI Europe (EPV) and the ProShares UltraShort Basic Materials (SMN). To protect those big gains, raise the stop-loss prices on each.

Make your move into both EEV and DUG, and raise your stop-loss prices on SEF, EPV, and SMN. Ladies and gentlemen, it’s time to trade deep into Europe’s woes.

Subscribe to ETF Trader here…

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