The stock market has been dishing out a lot of bluffs lately. Huge up days are followed by sobering and painful down swings. This rollercoaster performance left many investors with an upset stomach. It seems like after today, ETFs are available at a discount yet again.

Within just a few trading days, the S&P 500 (AMEX: SPY) and Dow Jones (AMEX: DIA) rallied over 15% from their November 21st lows set at 7,475 and 743. Is this rally just another bluff?

Already in October (when the Dow was at 9,500), we alerted subscribers to our ETF Profit Strategy Newsletter that the Dow Jones will have to fall below 7,500 before bottoming while the S&P would have to sink below its October 2002 low of 780. Those respective lows would be followed by a counter trend rally that will last into the New Year.

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Below are four ETFs we highlighted as prime beneficiaries of this sucker rally. These ETFs bounced between 10 – 30%. Pull backs like today offer a second chance to buy at huge discounts.

Most of the highlighted ETFs are high beta ETFs. High beta ETFs offer more upside potential in exchange for on extra dose of volatility.

ETF Pick No. 1

The PowerShares WilderHill Clean Energy Portfolio (NYSEarca: PBW) has a beta of 1.90. In plain English, this means that PBW is almost twice as temperamental as the S&P 500. PBW is made up of companies that focus on reducing the pollution and carbon from current dominant energy (coal, oil, gas, etc.). Clean and alternative energy ETFs have been the worst performing sector over the past six months.

ETF Pick No. 2

Our second pick from this sector was the Market Vectors Global Alternative Energy ETF (NYSEarca: GEX). GEX consists of companies engaged in deriving power from alternative energy sources such as; wind, solar, bio-mass, bio-fuel and geothermal. PBW and GEX are selling at 75% discount compared to pre-summer prices. .

                                       

A main contributor to the melt-down of clean energy stocks were falling oil prices. On the flip side, alternative energy ETFs will benefit from a price recovery in oil, our third pick. One day before oil fell to $49.50/barrel we recommended the United States Oil Fund (AMEX: USO) based on the following rationale: 

“A look at the chart reveals that NYMEX light sweet crude oil started its 300% run from January 2007 to July 2008 at $50/barrel. This level is likely to serve as major resistance for lower prices. Furthermore, the $50/barrel level should serve as a springboard for oil prices to climb again. Curiously, a bottom in oil prices might coincide with a temporary bottom in U.S. and international stock markets.”

ETF Pick No. 4

The equity markets cooperated with our analysis and rallied along with oil. Thanks to ProShares, Rydex and Direxion, it is easy to gain leveraged exposure to the major U.S. indexes. At below Dow 7,500 we recommended to add the ProShares Ultra S&P 500 ETF (NYSEarca: SSO). The objective of SSO is to deliver twice the daily performance of the S&P. For example, if the S&P goes up 1%, SSO should go up 2%.

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ETF Pick No. 5

Our "ETF Pick No. 5" was actually not a buy recommendation. “Once the Dow breaks beneath 7,500, it’s time to lighten up on short ETFs” was our statement. ETFs like the ProShares UltraShort Financials (NYSEarca: SKF) and ProShares UltraShort Real Estate (NYSEarca: SRS) have dropped as much as 80% in less than four days. Chances are that SKF and SRS will be worth less in a month from now than today. Pull backs make for a good opportunity to sell short ETFs at a premium.

Even though ETF Picks No. 1 through 4 have already started their next leg up, there will be "second-chance days" to get in on those high beta ETFs at a discount.

Keep in mind that the above recommendations are geared to benefit from a counter trend rally, so don't get too cozy with the recommended ETFs. The right time to sell along with long-term guidance will be provided via our ETF Profit Strategy Newsletter.

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