I expect a short-term market retreat in the near future that could produce a nice opportunity to turn quick profits by taking short positions. Of course, any decision to go short should not be taken lightly, especially when equity markets in general are on the rise. However, when the 50-day and 200-day moving averages that I track start to lag well behind current prices, as is occurring now, equities often pull back. It is precisely that potential dip in the markets that offers a chance to profit if short trades can be timed correctly.

The idea is easier to suggest than to carry out successfully. Market timing is difficult for the best of investors, since so many unforeseen events can occur to change the direction that stocks are heading. One example occurred late last week when Securities and Exchange Commission regulators accused Goldman Sachs of fraud in trading collateralized debt obligations. Couple that news with a considerable drop in the University of Michigan Consumer Sentiment Index, and we have a recipe for a market correction -- especially if further bad news occurs this week.

As equities appear to be stretched to their breaking point, they could snap back much like a rubber band. Fortunately, there are several ETFs that allow you to take advantage of a potential correction in the markets. One ETF that I like is the ProShares UltraShort Oil and Gas (DUG).

This ETF seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas Index. That means that if the Dow Jones U.S. Oil & Gas Index moves down 2%, DUG should climb 4%. The index itself measures the performance of the energy sector of the U.S. equity market. Component companies include oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies. Below, you will find the top 10 holdings in DUG, as of April 20, 2010.

If you take a look at a chart of the Dow Jones U.S. Oil & Gas Index, you can see that energy stocks have been turned back at their highs three times now in recent months. In technical terms, this is known as a triple-top. It is a bearish sign for companies such as Exxon Mobil, Chevron and Conoco Philips. Bad news for these companies is good news for DUG, since the fund is designed to rise when the prices of oil companies such as Exxon, Chevron and Conoco fall.

I am not currently recommending an allocation to DUG, but I do believe the ETF trades near a low-risk entry point. If you want advice about buying and selling specific ETFs, including appropriate stop losses, I encourage you to sign up for my ETF Trader service. As always, I am pleased to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.