Two ETFs to Short, and Two to Buy

The KBW Regional Banking ETF(KRE Quote) set a new record low on Tuesday of $42.50. Consider selling short an ETF that holds 94.5% banks and 5.5% savings and loans at a time when these sectors are being dogged by credit concerns.

The same forces are working against the PowerShares Listed Private Equity Portfolio (PSP Quote). This ETF follows the Red Rocks Listed Private Equity Index, which is made up of publicly traded private equity, investment holding and business development companies as well as venture capital funds.

The second pair of ETFs have climbed steadily over the past three months. They both gave back a little in Tuesday's selloff, but not enough to reverse their technically bullish signals.

Consider buying the Oil Service HOLDRs Trust (OIH Quote) on yesterday's dip of $4.01, or 2.13%, to $184.25. The highly volatile price of West Texas intermediate crude oil temporarily fell below $74 a barrel, allowing a good entry place to buy the fund. The Oil Service HOLDRs has been 55.8% positively correlated to the price of West Texas intermediate crude oil over the last year. And higher oil prices appear to be one of those things that can't be avoided.

The final bullish pick, the Software HOLDRs Trust (SWH Quote), set a new 52-week intraday high of $43.53 on Tuesday before slipping back a bit. The fund's largest holding, Microsoft (MSFT Quote), which represents 22% of assets, is sitting on a king's ransom of about $20.4 billion in cash and securities as of June 2007, making it immune to the credit market turmoil. Companies that can avoid the turmoil of the bond market by internally funding projects are better positioned for growth.

Remember to place your stop-loss orders to help protect you from sudden moves against your positions. Good luck.