ETF Expert

Greenspan stated that flattening home prices puts pressure on consumer discretionary spending. (Yep, Alan is still on the "talk tour," letting us know that there’s slightly less than 50% chance of a recession and that consumption is likely to wane.)

So… if we accept the assertion that consumption could drop off in a flattening real estate environment, what might we make of a genuine drop in real estate prices?

In truth, Q4 2007 looks good-to-go for all stocks, even the non-essential sellers of services and goods. In fact, with a handful of hot retailers ready to perform in the Christmas season, consumer services may actually post a modest rally in the remaining months of 2007.

Of course, consumer discretionary would not be my pick of the sector litter. Still, Fed rate cuts plus seasonality bodes very well for stars like Best Buy (BBY), American Eagle (AEO) and GameStop (GME).

Nevertheless, investors need to be on their toes. There is a looming downturn in housing; prices are falling and they will continue to do so. Moreover, it is ludicrous to think that homeowners will supplement all of their desires with lower rate credit cards in 2008.

It stands to reason that… as we turn the corner into next year… SPDR Select Consumer Discretionary (XLY) may not be the best "hold." In fact, the more aggressive investor might even look to profit from UltraShort Consumer Services ProShares (SCC). (I’d wait until a pickup in market volatility via the VIX Index or a few negative forecasts in the 2008 initial earnings season.)

Keep in mind, when the Dow hit 14000 for the first time, UltraShort Consumer Services ProShares (SCC) was at a price point of 67.5. During the sub-prime/lending/credit crisis up through the dramatic 50 basis point cut in the Fed’s discount window on August 16, 2007, SCC rocketed almost 24% in less than 4 weeks!!!

Now volatility has tapered off… as have a great many of the market fears. And the good will hunting is likely to continue through the season.

Still, if the CBOE Volatility Index (^VIX) were to find its way back to 25 from its current level of 17, and/or if we received disappointing guidance from the likes of Home Depot, Lowe’s, Target and Wal-Mart, UltraShort Consumer Services ProShares (SCC) may be a profitable move for aggressive investors.

Not that bold? That’s okay. You can simply avoid SPDR Select Consumer Discretionary (XLY), and look toward the S&P Global Staples Fund (KXI). It’s tough to beat in any market environment.

Disclosure Statement:  As a Registered Investment Advisor, Pacific Park Financial, Inc. may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.