3X Exchange-Traded Funds
When we made our buy 'em call on October 10th, we wanted to avoid single stock risk. And, we wanted to have prudent exposure, while still maintaining some cash levels. Our solution was to deploy enough cash into 2 to 1 leveraged funds on the S&P (SSO) and the Nasdaq 100 (QLD) so that our managed accounts were 50% cash, and 100% effective market exposure. That worked out well.
Now, along comes an even more aggressive ETF: Triple upside and downside exposure. I have no opinion of these, as I have not really worked out the usages of this. It does seem a but excessive, and my friend Paul absolutely hates them.
Here is the full run of triple leverage ETFs. I wonder if Rydex will come out with a competitive product or not.
Fund Name . . . Symbol . . . Benchmark . . . Leverage
Direxion Bull Funds
• Large Cap Bull 3x
(BGU) Russell 1000 Index 300%
• Small Cap Bull 3x
(TNA) Russell 2000 Index 300%
• Russell 1000® Energy
(ERX) Energy Bull 3x Shares Index 300%
• Financial Bull 3x Russell 1000 Financial Services Index
Direxion Bear Funds
• Large Cap Bear 3x
(BGZ) Russell 1000 Index -300%
• Small Cap Bear 3x
(TZA) Russell 2000 Index -300%
• Russell 1000 Energy
(ERY) Energy Bear 3x Shares Index -300%
• Financial Bear 3x Russell 1000 Financial Services Index
Paul Disses the Triple Leverage ETF (Video)
10 Bullish Charts, Signals, Indicators (October 10, 2008)
Innovative Funds Benchmarked to Help Advisors and Investors Seeking to Outperform
Nov 03, 2008 11:41 ET
Race to Call the Bottom
My friend Peter Boockvar has a nice quote in this morning's NYT article, Forecasters Race to Call the Bottom to the Market.
The article discusses various extreme forecasts of the past: Bears like Owen Lamont (Dow 1,000), Nouriel Roubini, Peter Schiff, and Bulls such as Kevin A. Hassett and James K. Glassman (Dow 36,000), and even Elaine Garzarelli (she's now a permabull, but in 1987, forecasted a crash).
Boockvar's discussion of markets was mistook for a forecast of Dow 5,000, and caused some interesting mayhem around the office:
"More than a few eyebrows were raised last week when news flew across trading desks that Peter Boockvar, who tracks equities at Miller Tabak, was predicting the Dow would crater to 5,000 by next year, a 40 percent decline from the current level.
Among the shocked: Mr. Boockvar himself. “It was mischaracterized!” he said in a telephone interview on Friday, adding that he had no idea if the Dow would sink to 5,000.
“Based on my calculations, I said we can go from 5,000 to 7,000,” he said. “No one’s smart enough to answer the question as to where we’ll be a year from now. I think it’s silly to pick a number, that’s why I picked a wide range.”
It had been an exasperating 24 hours for Mr. Boockvar. “I had to deal with it half my day yesterday,” he said."
Been there, done that. I understand Peter's exasperation. You get grief from people who believe that the media drives the markets (its the opposite) and from people who wont even contemplate an ordinary cyclical sell off.
The Times article adds: "Even in normal times, forecasters have a strong incentive to make extreme predictions, which is why those “Dow 1,000!” reports persist. “It’s eye-popping. It’s relevant. It seems exciting.”
Here's the funny thing: There is a degree of truth in that, but not in the way they imply in the Times article. The Cult of the Bear articles at the Street.com, with the infamous Dow 6,800 call, generated a disproportionate amount of publicity. Some people looked at it as a good career move. It probably worked out that way, but that was never the intention.
I mentioned this a long time ago, but I'll repeat it here again: I was really utterly surprised by the fierce reaction to the Dow 6,800 forecast. I have always thought of forecasts as laughable. The track record of economists and strategists is notoriously poor, no one ever consistently gets the year out forecasts correct several years in a row -- its just totally random. I had warned readers away from them many times prior (see The Folly of Forecasting). So I was genuinely shocked anyone took that call remotely seriously.
I can relate to Boockvar's agita. I had written back then: "The slow-motion slowdown. It starts with the consumer, who after years of spending, finally tires. Soon, it infects corporate revenue and profits. Slowly, it cascades its way across different sectors: housing, durable goods, discretionary spending, entertainment. Eventually, the decay spooks the markets."
That was the main point, but it was widely ignored in favor of focusing on the downside number. I can easily imagine what Peter was going thorugh. The pushback to the cult series was so bizarre to me. And the troll comments in 2007, especially at the peak of the market, are unbelievably amusing to read today. The current crop of anonymous trolls regarding the recent BUY EM call, are similarly laughable. There's an interesting discussion that looks at the anonymous troll at Wired: Twitter, Flickr, Facebook Make Blogs Look So 2004.
Hey Pete -- welcome to my world!
Forecasters Race to Call the Bottom to the Market
MICHAEL M. GRYNBAUM
NYT, October 26, 2008
Twitter, Flickr, Facebook Make Blogs Look So 2004
Apprenticed Investor: The Folly of Forecasting
The Street.com, 06/07/05 - 01:05 PM EDT
Cult of the Bear
The Street.com, Part 1 01/05/06 - 07:18 AM EST
S&P 500 Review
In our office, we've been using the Fusion IQ quant system for so long, we know it inside out. We use it as the basis for our institutional trading and published research (up ~10% for the year).
Subscribers have asked us to include our market and stock commentary -- beyond the pure neutral software application. In addition to the tools index rankings, there is also an "S&P 500 Marketometer" -- an intermediate term gauge of the S&P 500’s internal health. We use this as the basis of our own market review. As requested, we include our own application of the quantitative equity ranking system. This means in addition to the equity, index and sector work, we upload our own technical and macro commentary, too.
My partner Kevin Lane is a well regarded technical analyst who built his reputation recommending Enron and Tyco be shorted long before it was fashionable. He is usually the yin to my yang, bullish to my bearishness. Here is his most recent technical commentary about the S&P500:
S&P 500 Index (SPX) - Daily Chart (1999 to Present)
As seen above the S&P 500 broke through what was once a solid support area (green lines and maroon dotted circle) in the last few days of trading last week and continued falling. This support break was critical as it sent a message to market participants that this corrective phase is not yet over. The next support zone for the S&P 500 now comes into play in the 1,015 to 960 zone (blue dotted lines). At these lower support levels, particularly the 960 level, we would likely see a powerful rally set up as the S&P 500 would hit support while also being deeply oversold and more than likely have absorbed a massive selling purge. These aforementioned factors along with a likely new 10-year high in the VIX (if this lower support level is hit) would suggest negative sentiment had peaked.
Trend, Breadth and Momentum are all bearish; Liquidity is bearish to neutral. The only element that is remotely bullish is Sentiment.
As we said to clients early last week (prior to these supports being violated) market internals and momentum were all very negative and the path of least resistance would remain down.
This still remains the case.
Kraft Foods to Replace AIG in Dow
Wow, that didn't take long . . . effective September 22 (Monday).
AIG, which joined the Dow in 2004, is the latest in a series of disastrous Dow picks: Microsoft, Intel, and Home Depot . . .
The S&P 381 and Other Oddities
Here's some funky stuff for the day:
• The Bespoke Boys point out that 23.8% of the S&P
500 381 "no longer fulfill the $5 billion market cap requirement for inclusion in the index." Ouch . . .
• Good news! We haven't been sucked into a giant black hole due to the Large Hadron Collider
• A book of things that look like Breasts: One Track Mind
S&P500: Better than BRICs!
Fascinating stuff: Of all the lousy bourses, the SPX (White line below) is the least lousiest!
Here's an excerpt:
"U.S. stocks pulled ahead of Brazil, Russia, India and China this week for the first time in 2008, spurred by the Federal Reserve's efforts to cut borrowing costs even as the biggest developing countries are raising theirs.
The CHART OF THE DAY shows the S&P 500's 12 percent loss this year leaves it ahead of Brazil's Bovespa Index, whose drop through last week had been the smallest of the five countries. The U.S. equity benchmark claimed the lead after banks rallied 22 percent and the steepest monthly retreat in commodity prices sent the Bovespa into a bear market.
The Bombay Stock Exchange's Sensitive Index dropped 25 percent in 2008 through yesterday, China's CSI 300 Index decreased 54 percent and Russia's benchmark RTS Index fell 21 percent. Brazil's Bovespa has lost 15 percent this year."
Hat tip Paul K!
Money on the Move' to U.S. Stocks: Chart of the Day
Bloomberg, Aug. 13 2008
When Does GM Get Kicked Out of the Dow, part II
Let's start a pool: At what point in the future will General Motors (GM) ignominiously join Eastman Kodak (EK), Woolworth and others and get tossed out of he Dow Jones Industrials? And, who will replace them?
I am betting this happens within 5 years, and perhaps even within 3.
As to the replacement, I might have said Google (GOOG) -- but I assume the DJ Editors learned their lesson top ticking Microsoft (MSFT) and Intel (INTC). Instead, my bet will be Cisco (CSCO).
Did I say three - five years? Let's change that to 12-24 months and I still think its Cisco over Google . . .~~~
Barron's Asks: Bear Market Rally?
In Barron's The Trader column, Kopin Tan asks: "Is the Stock Market's recent resurgence just an ephemeral, bear-market rally?"
Before answering that, have a look at the chart at right. It accompanied his questions; the black lines are my own.
There are several things to be gleaned from this:
First, the Nasdaq remains the healthiest of the major indices. Thats could be due to strong sectors within it (i.e., Enterprise Software). Or it could be due to specific stock leadership, namely -- Google (GOOG), Apple (AAPL), Research in Motion (RIMM), or Baidu.com (BIDU).
Second, the down trend seems to be not yet quite vanquished. What was described by some as a breakout is now looking like it could turn out to be a false breakout.
Third, the SPX and Dow are at critical levels -- a failure at the trend line likely means more downside to come. And, the recent May highs appear to be a lower low to this old traders eyes. Any failure at this level means more trouble ahead.
Last, a further failure at the March lows would be disastrous for the indices.
Your mileage may vary . . .
Oil, Unemployment Rise, Stocks Fall
Barron's June 9, 2008
Odd Data Point: Tech Passes Finance in SPX
How is this for an odd data point? Bank stocks are no longer the largest industry group in the SPX, having been recently bypassed by Technology.
That's according to this article by Bloomberg News:
"Bank stocks lost their position as the biggest industry group in the Standard & Poor's 500 Index to technology companies after tumbling 31 percent since 2006.
Computer and software makers led by Microsoft Corp. and International Business Machines Corp. accounted for 16.26 percent of the benchmark for large U.S. companies based on yesterday's closing prices. Financials, led by Bank of America Corp. and JPMorgan Chase & Co., fell to 16.19 percent.
Banks slid the most among 10 industries in the S&P 500 last year [-21%] and are the worst-performing group so far in 2008, as lower U.S. real-estate prices led to losses on mortgage debt and derivatives approaching $380 billion globally...
Financial shares in the index declined almost 21 percent in 2007, their worst year since a 24 percent drop in 1990. They have plunged 31 percent since the end of 2006."
I saw that and wondered if this might be some sort of a contrary indicator. I may actually have to pull all of the prior leadership changes in the SPX500, and other indices, and see if there is any significance. I would be curious to see if perhaps there might be a paired trade (i.e., Long Finacials, short Tech)
Regardless, in the S&P500, its now Banks #2, Tech #1.
Drop in Bank Stocks Leaves Technology Biggest S&P 500 Industry
Bloomberg, May 21 2008
Updating the Dow (top ticking Energy?)
The editors at DJ have made a few changes to the venerable index: Out are Honeywell (HON) -- which I have owned since the GE deal fell apart, and Altria (MO) which I sill have a small position in from the late litigation era.
In are Chevron (CVX) and Bank of America (BAC), which I don't. The charts of the buy and sell signals below are rather interesting.
The adds of Intel (INTC) and Microsoft (MSFT) late in 1999 top ticked the tech boom. Will the Chevron add do the same for energy?
Here's the WSJ:
"Dow Jones & Co. announced that Bank of America Corp. and Chevron Corp. will replace Altria Group Inc. and Honeywell International Inc. in its benchmark Dow Jones Industrial Average effective Feb. 19.
The change is the first in four years and reflects the index's continued shift away from industrial firms and into other sectors such as energy and financial services.
Excluding thinly traded Berkshire Hathaway Inc., Bank of America and Chevron are the two biggest U.S. companies by market capitalization which currently aren't in the Dow industrials."
Interestingly, I noticed our ratings on both drops were "Neutrals"; the adds were split: BAC was a buy, CVX was a sell . . . charts after the jump.