"Tread lightly," cautions leading fund expert Bill Donoghue. In his Marketwatch Proactive Fund Investor, which develops various actively-managed mutual funds portfolios, "Further market erosion is more likely than a rally. There's little reason for optimism."
"When trends become highly probable and highly correlated with portfolio holdings, our advice may become very profitable. This is one of those times.
"The Dow Jones Industrial Average is about to take out its 2002 low and safe-harbor investors are shifting to precious metals. Technically the next support is 25% down at 6,000.
"Considering the chronic financial damage done to the global economy, the bottom could even be lower. Even if you are a perennial optimist, you have to entertain and prepare for the possibility that the safest investment is to expect a continuing market downturn.
"That is more than enough potential risk to at least shift significant assets to cash and a small percentage to gold. Further market erosion is more likely than a market rally. There is little reason for optimism.
"Precious metals and inverse (bear market) funds are looking increasingly attractive. Most other safe harbors are earning very low rates.
"With Treasury bills and notes changes nearing zero, and with the risk of rising rates making bonds especially vulnerable to erosion, safe harbors are becoming hard to find.
"That leaves precious metals. We are taking slow but continuing steps toward increasing exposure to precious metals (you might choose to move faster).
"While there are a few stock market sectors benefiting from falling interest rates for a time, betting against the stock market is the best choice. We're comfortable taking some double-beta positions.
"Among our various model portfolio, the following five-position portfolio is compiled using the five ETFs with the strongest positive price momentum from a universe of 124 sector, style-box, single-country and regional ETFs.
"We currently have a 10% position in both Proshares UltraShort Technology (NYSE: REW) and ProShares UltraShort Financials (NYSE: SKF).
"In this portfolio, we are also holding 20% positions in iShares DJ US Utilities (ASE: IDU), iShares DJ US Consumer Goods (ASE: IYK), iShares iBoxx$ Investment Grade Corporate Bonds (ASE: LQD) and iShares Silver Trust (ASE: SLV)."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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