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Three ETFs to Buy Before the Post-Rally Sell-Off

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Risk of capital fleeing the markets seems high.

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As the dollar has gained on the euro, and gold has sold off, the TLTs are looking stronger, with an optimal upside target zone in the vicinity of 93.5-94. At this juncture, only a sudden plunge that violates 90.30 will delay but not derail the current setup.


Click to enlarge.

2. ProShares UltraShort SPY (SDS)
Another trade that's overdone in one direction is the S&P 500 and its SPDR ETF (SPY). The S&P 500 was up 43% until a few days ago, and in the past 3 days has fallen nearly 5%. That shouldn't be surprising, as we've seen a 2-week period at the end of this big up leg, where volume has been tailing off measurably, and the advance-decline figures have shown weakening breadth.

We appear to have a near-term peak right around where the 200-day moving average is, with a number of technical indicators suggesting the SPY is exhausted and due at least for profit-taking. Profit-taking could turn into a deeper retracement of the March-June advance if investors react much more swiftly than at any time in recent memory to heightened risks impeded in the ongoing uncertainties of domestic eco-politics, compounded by new international challenges.

To participate in the downside, I like SDS, which since last Tuesday has thrust from the 51.5/20 area towards my next optimal target in the vicinity of 57. Only a break below Tuesday's late-session pullback low at 55.85 will trigger initial signals that the up leg from the June 11 low at 51.55 to the 57 area is complete, and that a correction's already in progress.

3. US Oil Fund ETF (USO)
Similar to the S&P 500 is the 4-month pattern in USO, which climbed from the 22 to 40 area, or 82% from February to June, suggesting technically that a bear-market rally may also be ending for oil. To relieve its overbought condition, the USO could retreat into the 34 to 32 area. I wouldn't be surprised if it broke down and headed back toward 22, or, in the case of crude oil futures, down to the $36 to $33 area over the next few months.
No positions in stocks mentioned.
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