Stock Market Downtrend

The Dow suddenly fell 253 points on Friday, September 2, 2011, after a terrible jobs report where it was reported that no new jobs were created in August 2011. We must have positive job creation just to stay up with population growth, and the current unemployment rate is 9.1%.

Since the large drop on the Dow indicates that institutions are involved in the sell-off, the selling will most likely continue during Labor Day week because institutions cannot dump all their millions of shares in a single day. This presents an opportunity to gain money on the short side during the next few days.

Another reason for the downtrend to continue is that President Obama is planning a jobs creation speech for Thursday, September 8. The Speaker of the House has already announced opposition to Obama's plans. This will reopen the deep wounds suffered in Congress during the debt ceiling debate during the first part of August. So, more negative fuel will send stocks lower this next week.

The way I plan to trade this situation is to buy three stocks that rise in a bad stock market. One of them is FSG, FactorShares 2X Gold Bull/S&P 500 Bear. A second ETF is TZA, a triple small caps bear stock. A third ETF is FAZ, a triple bear for financial stocks.

Do not hold these leveraged ETFs more than a week or two because we will probably have a relief rally in stocks whenever QE3 becomes more certain or whenever big investors decide to scoop up stock bargains.