After an 18-month losing streak investors are finally getting a break. The March 9th lows have served as a springboard for equities. This trend should continue, at least for a while.

The market’s recent action is in complete harmony with our assessment provided on January 15th (available to subscribers of the ETF Profit Strategy Newsletter): “The best target for a temporary low is 6,700 for the Dow and 700 for the S&P 500. Extreme pessimistic sentiment may drive the indexes even towards Dow 6,000 and S&P 600. Once the new lows are reached, the markets should stage the biggest rally seen since October 2007”.


The above forecast was followed up with this Trend Change Alert, sent to subscribers on March 2nd: “While the Dow Jones and S&P have dropped to multi-decade lows, the Nasdaq remains above the 2008 low. Ideally, we would like to see lower lows for all indexes brought about by a final phase of capitulation. One more up-down sequence over the next 1-2 weeks concluded by a huge down-day on high volume would be ideal. Once a bottom is found, a powerful rally should …”

Most truly, the market is in rally mode and bounced as much as 20% in less than two weeks. Below are a number of ETF profit strategies designed for conservative, moderate and aggressive investors. Even though some of the recommended ETFs have gained over 30% since our recommendation, there is still more room to the up side.

Conservative ETF strategies:

Index ETFs tracking the major U.S. benchmarks are one of the easiest, most cost effective and most diversified ways to benefit from a rallying market. In addition to the "usual suspects", such as the S&P SPDRs (AMEX: SPY), Dow Diamonds (AMEX: DIA) and Nasdaq (Nasdaq: QQQQ), there are even more comprehensive broad market indexes such as the Russell 1000 (NYSEArca: IWB), Wilshire 5000 (NYSEArca: TMW) and Vanguard Total Stock Market ETF (NYSEArca: VTI).

With the touch of a button (if you have an online trading account), you can gain (fractional) ownership of over thousands of stocks.

Moderate ETF strategies:

The fourth quarter of 2008 was the worst quarter for dividends since 1956. 288 of approximately 7,000 publicly owned companies that report dividend information to Standard & Poor’s decreased their dividend, representing a 444% increase from the 52 issues that decreased their dividend during the fourth quarter of 2007.

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Before these numbers became available, on December 18th, 2008 ETFguide said the following: “Risk management is more important than dividend yield. If history is a guide, dividend yields will not be able to protect investor as the stock market slides further to manufacture higher yields.” On average, dividend ETFs lost some 50% since our warning.

Just as dividend ETFs with high exposure to financials fell harder and faster than the market during the meltdown, they will rally faster and further in the near future.

The SPDR S&P Dividend ETF (NYSEArca: SDY) boasts a 33% stake in financials, the iShares DJ Select Dividend Fund (NYSEArca: DVY) has a 20% exposure to financials while the Vanguard High Yield Dividend ETF (NYSEArca: VYM) has only 16% of its assets tied up in financials. As a general rule of thumb, the higher the exposure to financials, the higher the yield and volatility.

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Some dividend ETFs come with a yield of more than 20%. Those kind of yields can help neutralize “timing mistakes” and add to the overall profitability of the trade. Keep in mind that those yields will not be sustainable.

Aggressive ETF strategies:

Leveraged long ETFs are one of the more aggressive strategies to profit in an up-market. ProShares offers a series of 200% leveraged ETFs while Direxion offers 300% leveraged ETFs. ProShares Ultra S&P 500 ETF (NYSEArca: SSO) aims to deliver TWICE the DAILY performance of the S&P 500. The Direxion Large Cap Bull 3x Shares (NYSEArca: BGU) aims to deliver TRIPLE the DAILY performance of the Russell 1000 Index.

The ETF we predicted to become the best performer throughout this rally has already gained more than 90%.

Contrarian ETF strategies:

Further devaluation of the U.S. dollar caused by the government’s massive spending spree has been driving investors to gold. Yet gold (NYSEArca: GLD) has not been able to break past the 2007 high.

The government’s announcement to buy nearly $1.2 trillion of T-bonds and government agency debt (such as Fannie Mae and Freddie Mac) caused a brief spike in long term Treasuries. While the iShares Barclays 20+ Treasury Bond Fund (NYSEArca: TLT) tracks the long-term treasury market we believe that the UltraShort 20+ Year Treasury ProShares (NYSEArca: TBT) which aims to deliver TWICE the DAILY inverse performance of long-term Treasuries will be the winner for April.

How far will this rally go? Is this rally the beginning of a new bull market or just another decoy rally? Is Dow 6,440 the ultimate bottom, if not what is? Which ETF will be the best performer during April? What’s the true direction for gold? All these questions are answered in the March and April edition of the ETF Profit Strategy Newsletter. As Benjamin Franklin said, "an investment in knowledge always pays the best dividends."

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