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Bolling: Ride Defensive ETF Trades Until the Tide Turns

I could not be more content. I am sitting on my deck overlooking the ocean with a 24 ounce coffee, Barron's and my dog by my side. I am watching some awesome waves --three to four feet -- perfectly breaking into the very high tide. The tide is as high as it has been since I built this place last year (yep, I did indeed top-tick the real estate market!) That's ok with me though, given the fact that I am able to write this column on my laptop, with this view.

Watching the power of the ocean, I can't help but think of the amazing flow of money into the commodity trade over the last 12 to 18 months. Like the tide, money flows in and out of sectors. I have to admit that even with the commodity bullish perspective I maintain, I am surprised at the massive investment flow.

It should come as no surprise that the sectors' whose tides have retreated, notably housing ( Hovnanian (HOV), Beazer (BZH) and Pulte (PHM) and financials ( Bear Stearns (BSC), Citigroup (C - Get Report), Countrywide (CFC) and Ambac (ABK), etc.). I have suffered the inverse fate of the oil trade, see the U.S. Oil Fund ETF (USO), the gold trade see streetTracks Gold ETF (GLD) and the grain trade, see Potash (POT), Bunge (BG), Deere (DE), Monsanto (MON), or the Market Vectors Global Agribusiness ETF (MOO).

The commodity tide is still rising and will continue to do so until another pull signals that high tide has been passed and the water may retreat.

The only thing strong enough to change the tide would be a firming in the U.S. housing market. That would come in the form of a firming of home prices. We would need a few months of strength in prices coupled with a sustained drop in inventory of homes -- new and not so new. If this happened, it would signal that the worst is over for the homebuilders. But, very much more importantly, it would take the pressure off the banks holding assets tied to those home values. Only then will they see some light at the end of this long, dark tunnel.

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