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Bounce Back Investing Ideas for the Fall Melt-Up of 2011


There might be an opportunity to bet on a counter-trend rally in certain sectors.

"A story to me means a plot where there is some surprise. Because that is how life is – full of surprises."
-Isaac Bashevis Singer

Glad that August is over? You're not the only one. The Summer Crash I had been calling for since June happened, but the big surprise was the way it played out. I ran a screen on the over 1000 ETFs/ETNs I track to identify extremes happening internally within the market. Take a look below at the most extreme ETFs among that entire list which are furthest below their respective 20 day (1 trading month) moving averages.

Solar, silver, oil, coal, and uranium took the biggest beating in August as in one fell swoop the entire world got taken back in time to the dark days of 2008. While Germany's equity markets got quite a bit of attention in the media, it looks like much more damage was done in energy and precious metals. Solar stocks in particular took a big hit because of headlines over failed Solyndra here in the US, and the realization that subsidies by European countries to solar companies likely will be severely curtailed.

The decline in these may or may not be justified, however there might be an opportunity to bet on a counter-trend rally, should the "Fall Melt-Up of 2011" I'm now calling for occur. In particular, silver which has effectively gone through two mini "relative crashes" is at an important ratio support level. Take a look below at the price ratio of the iShares Silver Trust (SLV) relative to the Dow Jones Industrial Average (DIA). As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/DIA.

Click to enlarge

For those looking into mean-reversion ideas, I suspect many of the ETFs listed could be prime candidates for a rebound rally in risk.

The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.

Twitter: @pensionpartners

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No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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