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ETF Update: False sense of security

Don't be lulled into thinking that the slide is over and that the markets have hit a bottom. In my opinion they have not. Major market participation in the CMO, MBS and IPO markets that drove previous market strength and breadth are still closed, and there is still the question of the viability of the US auto industry. The new home markets showed a little sign of activity last quarter, but that has been resales of foreclosed and auctioned homes. We could still be in the eye of the storm. Again a wait and see approach is recommended with conservative purchasing or reallocating in select industries. Careful attention should be paid to a company's balance sheet specifically the accounts receivables and cash flow statements.

On that note, Sector/Industry funds allows you to target specific industries or diversify your risk in specific industries that you may be over weighed in, such as the automotive industry. If that is your case, you may want to look at Sector/Industry Spiders which lets you target or avoid specific industries and sectors. State Street Global Advisors runs a Sector/Industry ETF fund. Its the Consumer Discretionary Select Sector SPDR Fund (XLY). The fund is designed to track durable goods, automotive, retail and other sectors sensitive to consumer discretionary spending. I looked through the top ten holdings of this fund and it barely, in my opinion, has much exposure to the automotive industry, but its a fund that you may want to consider using as a possible hedge if your current portfolio is still over weighed in automotive or other specific sectors that have not held up well in the last two years.

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