Chris Rowe

2 ETFs to Profit Whichever Way the Market Goes

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While the bulls still have the ball, anything could happen in this market. So, instead of betting on direction, why not bet on strength?

You don't have to be absolutely right on a trade in order to make money in the stock market. You only have to be more right than wrong. 

I'll get to that in a second, and I'll spell out a money-making strategy that the professional fund managers use, and you can use just as easily.

One of the easiest ways to make money in the stock market is by using exchange-traded funds (ETFs). For those of you who've been chained up in the attic for the last decade, an ETF is a tradable security that represents a group of stocks, just as the Dow Jones Industrial Average (DJI) represents 30 stocks.

In fact, the ETF called the "Diamonds" (DIA) is the security that mimics the performance of the most popular the Dow.

But back to only having to be more right than wrong...

Today I'm going to talk about two sector ETFs: one that probably trades higher, and one that probably trades lower. 

You can profit from both of them, since you can profit from either the advance or decline of a security. 

But what would happen to each ETF if the general stock market traded much higher? What about much lower?

I'm an ex-money manager from Wall Street, and the way we made millions back then is the same way we do it today: hedging our accounts. 

The term "hedging" may sound intimidating to the novice, but it's an incredibly simple concept that you'll definitely understand in five minutes from now. 

In fact, you'll start profiting from it! 

If the Market Moves Higher …

Right now, odds are in favor of an advance in computer stocks, software stocks and telephone stocks.  n other words, I think the tech sector looks pretty good. And if the market moves up, tech could lead the way. So, we want to find a "sector ETF" that works for us.   

There are quite a few, but for the strategy I'm going to give you right now, I'm going to use the Ultra Technology ProShares (ROM). 

What's special about this ETF is it actually multiplies the returns by two. So, it tries to correspond to twice the daily performance of the Dow Jones U.S. Technology Index. If the Dow Tech index is up or down 10%, this ETF should move up or down 20%. 

If the Market Moves Lower ...

I'm a pretty big hater of oil stocks. Crude looks like it wants to pull back, and the sector has been showing many signs of weakness. 

An ETF that can allow us to take a bearish position in the oil and gas sector is the UltraShort Oil & Gas ProShares (DUG). This ETF attempts to correspond to twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas Index.

If the Dow Jones U.S. Oil & Gas Index moves 10% in either direction, this ETF should move by 20% in either direction

I think technology stocks could outperform the general market and oil stocks underperform the general market whether the general market trades up or down.