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US Stocks: Two powerful new ETFs for the Santa Claus rally

Posted November 21, 2007

“With a history of upside gains in the month of December, I think it’s a wise idea to take on a bullish stance from now until the end of the year. I’d like to alert you to two powerful new EFTs that you should consider for your investment portfolio.” — Bryan Bottarelli

by Bryan Bottarelli, TFN

Baltimore — (TFN): Today’s “Trading Tactic” message revolves around two powerful new ETFs that you may not be familiar with. I think both are particularly important because they offer the individual investor (like me and you) easy access to markets that were previously untradable using conventional investing methods.

More on this in a moment…

First, I’d like to preview the upcoming trading month of December. According to the Stock Trader’s Almanac, December is the second-best month of the year on the Dow Jones Industrials and the S&P 500. Dating back to 1950, each index has averaged gains of 1.8% and 1.7%, respectively, in December. It’s also the third-best month for the Nasdaq, Russell 1000 and Russell 2000. So as you can see, we have some powerful upside tailwinds on the horizon.

Not only that, but history has also shown that the market rarely falls precipitously in December. Perhaps this aversion to bearishness is sparked by the phenomenon known as the “Santa Claus Rally” which is a short (yet respectable) rally that begins during the last five trading days of the year and goes through the first two trading days of the new year. Dating back to 1969, the S&P 500 has averaged 1.5% during this seven-day span.

With that history of upside gains, I think it’s a wise idea to take on a bullish stanc from now until the end of the year. And having said that, I’d like to alert you to two powerful new EFTs that you should consider for your investment portfolio. Both of these ETFs offer you a wonderful amount of portfolio diversification unlike anything you’ve ever been exposed to before.

The first ETF is called the PowerShares DB Agriculture (DBA: AMEX), and it offers you exposure to the four primary crops in the United States: corn, soybeans, sugar and wheat. In the past, playing commodities like this involved futures trading, which means you’re buying and selling contracts for the future delivery of the physical raw materials. Since this is a sophisticated art form, most individual investors do not engage in futures trading, thus losing out on the enormous profit potential of corn, soybeans, sugar and wheat. But now, thanks to the DBA, all you need to do is buy these shares and you’ll own equally weighted exposure to all four crops. A quick look at the chart shows you the nice bullish trend that the DBA has been engaged in, with price increases looking to extend well into 2008.

The second ETF is called the ProShares UltraShort FTSE/Xinhua China 25 (FXP: AMEX). This new ETF was just launched, and the idea is to hand you a profit if the Chinese markets fall. In fact, the investment results of the FXP correspond to twice the inverse of the daily performance of the FTSE/Xinhua China 25 Index (which is composed of the 25 largest and most liquid stocks on the Hong Kong Exchange).

In other words, if the Chinese index falls by 1%, the FXP fund should rise in value by 2%. Given the epic increases of companies like China Mobile (CHL: NYSE), China Life (LFC: NYSE) and Petrochina (PTR: NYSE), any downside sell-off in these stocks could result in an incredible return on the FXP. If you feel that the Chinese markets are due for a big-time fall, you should certainly add FXP to your holdings.

Don’t forget to watch this weekend’s Smart Trading Action Alert: Smart Trading Action Alert: Given the beating some blue chips have taken in recent weeks, select small-cap stocks now provide opportunities for safe profits. Ian Cooper explains.

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