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10 Contrarian Ideas for the Summer

3. Sell Financial Stocks

This looks like a major freight train barreling down the track at 60 mph. Just look at the chart for ProShares Ultra Financial (UYG) from March into May: a three-bagger in two months. However, note the broken uptrend lines in May for (from the top) relative strength, price and MACD. These breaks of trend lines can sometimes be good alerts for possible trend reversals.


There has been exceptional momentum and increasing enthusiasm from cheerleaders. Goldman Sachs has just upgraded a large group of major banks with much higher price targets. You can short using ProShares UltraShort Financials (SKF) or ProShares Short Financials (SEF), but be careful -- this bull train may not be an illusion. But if you believe, as Jim Cramer does, that new credit card regulation will hurt bank stocks, now may be the time to step in front of the train and hope it is illusory.

One note to consider: Some index-tracking ETFs, especially leveraged ETFs, can be subject to long-term accumulation of daily tracking errors. The result is that holding these funds for many months can produce returns far below what would be expected for perfect tracking. An example of this tracking problem is discussed below in idea No. 7 (real estate).

4. Sell Municipal Bonds

This suggestion makes sense if the recession drags on for the rest of the year and the budget shortfalls in cities and states put downward pressure on municipal bond ratings. A well-publicized default or two could produce a panic selloff. Finally, if there is a recovery starting, rising interest rates could put downward pressure on muni prices.
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UYG $52.13 -0.46%
UDN $22.02 0.71%
SEF $19.56 0.16%
SDS $23.75 -0.04%
SH $22.85 -0.09%


Chart of I:DJI
DOW 16,014.38 -12.67 -0.08%
S&P 500 1,852.21 -1.23 -0.07%
NASDAQ 4,268.7630 -14.99 -0.35%

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