Wednesday’s Worry – ETF Madness hits $1,000,000,000,000
by phil - December 22nd, 2010 7:46 am
A Trillion Dollars – Muhaha!
After adding $209Bn (26.3%) in total assets so far this year, the US ETF industry has passed the Trillion Dollar mark led by $31Bn of inflows into fixed income ETFs, of all things as well as $29Bn of inflows into emerging markets, and $21Bn into domestic. Recent outflows have knocked commodity ETFs down to $11.4Bn, miles down from last year’s $32.6Bn inflow – rats leaving a sinking ship, perhaps? That would be very bad news for the firm that bought up 90% of the LME copper supply recently. Do ETF traders really know something or are they a lagging indicator?
“There is little doubt that money chases performance, so the bedrock for significant (ETF asset) growth is clearly a continuing move higher for risk assets,” said Nicholas Colas, chief market strategist at ConvergEx Group. He added that growth for ETF assets would essentially be a “tug of war” between hedge funds and retail investors. “As retail investors grow more confident in a continued rally in risk assets, they will shift capital from cash to equity ETFs,” said Mr Colas, who described growth for equity focused hedge funds as the “other side of the growth coin” for ETFs.
Mr Colas noted that hedge funds tended to use ETFs on the short side which was negative for asset growth. He said that as hedge funds expanded their equity trading books, a growing portion would come from from ETF short sales. “This will come through as ‘supply’, dampening demand for new shares.” Barry Ritholtz ponders the end game of the ETF madness and concludes that soon there will be more ETFs than ever:
There is growing speculation surrounding what is believed to be the next breakthrough product in the ETF marketplace: Single stock tracking ETFs. Unlike their index-based cousins, these new single stock trackers would, as the name implies, track only a single stock, trade at exactly the same price as the stock to which they’re linked and consequently eliminate the need for single stock ownership. A top executive with a money management firm who is familiar with his company’s plans to launch such a product and was granted anonymity so he could speak freely, put it this way: “Think about the prospect of, say, a GE tracking ETF — an investor could capture over 99% of the movement of GE
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A Turning Point in Early September? (DIA, SPY, ETFs)
by ilene - September 7th, 2010 2:56 pm
A Turning Point in Early September? (DIA, SPY, ETFs)
Courtesy of John Nyaradi, of Wall Street Sector Selector
[Take a free trial to Wall St. Sector Selector here.]
All summer long we’ve been locked in a wide trading range that extends roughly from a low of 1020 on the S&P 500 to a high of 1120. Now with the calendar turning to autumn, mid-term elections close at hand and having arrived at a significant technical juncture, it seems likely that new forces will serve to push the markets in a decisive manner in one direction or other.
Looking at My Screens
On a technical basis, the sharp three day rally last week pushed the S&P 500 back up to strong resistance levels around the 1100 mark with the widely watched 200 Day Moving Average just ahead at 1116.
Less widely watched is the Point and Figure Chart of the S&P 500 that is displayed below.
Chart courtesy of stockcharts.com
Starting at the top, the black arrow highlights the pattern is in a bearish configuration, expecting lower prices ahead with a price objective of 942.85 and so the point and figure chart is on a “sell” signal.
More significantly, it has also broken below the upward trending blue bullish support line and this indicates a very significant trend change from bullish to bearish.
These changes in trend are very rare and very significant as the red and blue lines tend to act like walls in the path of the columns of Os and Xs.
You can see the last such change highlighted by the arrow at the lower left of the chart which occurred shortly after the beginning of the huge rally last March, and this uptrend has been in place until just this month when the uptrend was broken by the column of Os descending to 1040.
Now we’ve seen a retracement rally that has brought the last column of Xs back up to 1104 and the base of the new red bearish resistance line. This line also corresponds almost exactly to the 200 day moving average.
So now the situation is quite clear. A break above the red bullish resistance line would represent a significant trend change back to the positive while failure…
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ETF Periscope: 10,000 Reasons to Hedge Your Bets
by Sabrient - August 30th, 2010 2:01 pm
Reminder: Sabrient is available to chat with Members, comments are found below each post.
10,000 Reasons to Hedge Your Bets
by Daniel Sckolnik of ETF Periscope
“Do not go where the path may lead, go instead where there is no path and leave a trail.” ~ Ralph Waldo Emerson
Though it’s not quite officially over, for all practical purposes it’s time to say goodbye to the dog days of summer.
The markets spent the last few months surfing its own volatility wave, yet ending up pretty much where it started. The numbers speak for themselves. The Dow Jones Industrial Average (DJIA) started June 1 at 10,133. It ended Friday at 10,150. At the same time, the benchmark S&P 500 Index opened the start of June at 1087, closed Friday at 1064. Oil? Using the ETF USO as a proxy, its June 1 opening was 33.65. Now? 33.57. What about gold? Using the ETF GLD for a proxy, we see it opened June 1 at 120. It closed Friday at 121, indicating a total $10 swing in the precious metal over the same time period.
So, the markets have effectively been in Sideways City all summer long. But now, with the return of all the big-money players from vacation frolics and the accompanying increase in trading volume, it’s time to get serious.
September is close enough on the horizon to taste, and both the Bulls and the Bears are positioning themselves in preparation for their respective expectations. It’s time for what might just turn out to be the main event of the year: The Battle for Dow 10,000.
DJIA 10,000, a psychologically important level, has proven itself to be fairly effective in terms of support throughout 2010. It first was tested this year all the way back in February, then was temporarily violated during the May 6th “flashcrash” before recovering. It was breached more deeply during the summer months, but once again finds itself serving, at least for the moment, as support rather than resistance.
So who has the stronger field position, in regard to market direction in general? The Bulls or the Bears?
If you go by the past week, it would be something of a wash, pretty much reflective of the summer. The early…
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Expecting Higher Prices Ahead
by ilene - June 21st, 2010 2:52 am
Expecting Higher Prices Ahead
Courtesy of John Nyaradi
Weekly commentary from Wall Street Sector Selector
It was quite a week of bad news mixed with higher prices, and through it all, we had an almost “stealth switch” to “Green Flag Flying” mode on Friday and so now expect higher prices ahead.
As I mentioned in an email to a subscriber, the old adage, “the market is never wrong, opinions are,” certainly holds true through this confusing time. Personally I feel very bearish about the long term outlook, even the medium term going into fall, but for now the indicators say we’re in an uptrend and we should be “long,” and so we are.
Looking at My Screens
Market internals continued to strengthen this week and all of our primary indicators have switched to “buy” signals.
All U.S. indicators point to growing strength and rising prices, and interestingly, many European indexes went to “buy” signals on Monday, as well, including Germany, Italy, France and even the European Financial Sector.
Sentiment remains bearish by historical averages which is bullish for markets.
How long this uptrend might last is anybody’s guess, but for now this nascent rally seems strong and could have significant upside ahead.
The View from 35,000 Feet
This week’s news was mixed as prices continued to rise. On the upside all major indexes advanced with the NASDAQ gaining +3%, the S&P +2.4% and the Dow and S&P holding above the all important 200 Day Moving Average. Technically the markets look very strong while fundamentals were mixed.
On the upside, the Empire State Manufacturing report came in positive, although lower than expected, industrial production was up, leading economic indicators advanced, Greece was reported to be on track with its austerity programs and the Euro had its best week since September.
On the downside, housing starts and building permits were poor while initial jobless and continuing claims rose against expectations. The Philly Fed report collapsed and the all important ECRI report continued to decline and is approaching levels that typically warn of impending recession.
What It All Means
Technically we are in an uptrend and I would expect higher prices ahead. Fundamentally things continue to weaken which bodes ill for the longer term. It seems that the thesis of a summer rally followed by a decline into autumn and early next year still looks valid.
All we can do is…
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ETF Periscope: Gold, Crude & ETFs
by Sabrient - June 21st, 2010 12:05 am
ETF Periscope: Gold, Crude & ETFs
Courtesy of Daniel Sckolnik at Sabrient
“Whenever you find yourself on the side of the majority, it is time to pause and reflect.”~ Mark Twain
There’s a lot to like about gold at the moment.
That seems to be the general consensus, anyway, which is why gold has been propelled to its current record high, with August delivery settling at $1,258 on Friday. Gold holds something for almost everybody. Momentum traders like it for the obvious trending characteristics it is exhibiting, well on track for posting its third straight month of gains. Those looking for a safe haven far from the volatility of stocks likely don’t need much of a nudge to hop upon this bandwagon for additional acquisition. It serves those, as well, who figure it to be the ultimate inflation hedge.
But has the shiny metal hit its top? At what point will some of the hedge funds with massive holdings in gold ETFs decide to swipe a scoop or two of profits from the bowl? Will gold lose a degree of glitter should the equity markets build upon the week’s solid performance and begin a measure of bull-riding? If extreme volatility returns to the market, will investors retreat back into cash?
As always in the markets, any scenario may play out. Circumstances that could affect the outcome in the short term include the onset of the upcoming earnings season, new signs of weakness from out of the European Union, or a chill sent over Wall Street, courtesy of the Senate’s threat to actually pass a financial reform bill with teeth.
Speaking of the Senate, much attention was given to British Petroleum’s recent grilling in Washington, where BP’s CEO certainly looked the part of a roast left in the oven a little too long. Still, the market’s response seemed to indicate that it had already factored in the inquisition. BP’s stock stabilized above last week’s lows, during which it explored the depths of its stock price, 50% off its two-year highs. The question is, will investors now consider the stock a bargain, or will fear of additional negative news drive “black swan” strategists to short BP’s stock?
For the moment, at least, the markets seem on firmer footing. Support levels for both the S&P 500 and the Dow Jones Industrial Average…
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Retail Investors Abandon Stock Market and ETFs in Droves
by ilene - June 15th, 2010 2:55 pm
Retail Investors Abandon Stock Market and ETFs in Droves
Courtesy of John Nyaradi’s Wall Street Sector Selector
MarketWatch.com reports today that retail investors “appear to be scaling back their trading activity in June.”
Trading is down approximately -30% in so far in June compared to May, according to a report from Sandler Oneil who says, ”We suspect the May 6 ‘flash crash’ as well as the market performance since then … have shaken the retail investor’s confidence” and that “June trading levels could be at multi-year low levels.”
Not good news probably for ETrade (ETFCD) or Schawb (SCHW).
This report comes on top of recent news that Morgan Stanley (MS) is closing 300 offices and laying off 1200 employees, along with lighter than normal volume in major equities markets and fund outflows of over $1 Billion for the week ending June 2nd as reported by the Investment Company Institute.
It’s a “deer in the headlights” kind of environment wherein retail investors are abandoning the domestic equity market and that could make it a perfect time to “buy” since the “dumb money” almost always gets it wrong.
However, my opinion is that you can’t just buy anything and hold on, “buy and hold” or “buy and hope.”
I’ve said recently that current conditions offer enormous opportunity and that many millionaires will be created over the next few years. But they won’t be buy and hold investors. I’m afraid those days are gone, maybe forever, replaced by this new volatility and challenging markets that will very likely require a disciplined trading plan for success.
John
*****
See also: Meltup "Abysmal Volume" Summer Approaches, Even As Americans Now Openly Shun Stocks, Zero Hedge
John Nyaradi publishes Wall Street Sector Selector, an online newsletter specializing in sector rotation trading using ETFs. John is offering PSW readers a 30 Day Free Membership and Free Special Report, "Slay the Dragon Within: How to Make Your Emotions Work for You Instead of Against You." His service provides signals for going long and short using standard and leveraged ETFs. Free Membership Subscribers also get access to the Wall Street Sector Selector Monthly Webinar and a second Report, "How To Avoid the Buy and Hold Trap." - Ilene
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Get Ready for a Double Dip
by ilene - June 5th, 2010 11:47 pm
Get Ready for a Double Dip
Courtesy of John Nyaradi’s Wall Street Sector Selector
In my view, it’s becoming increasingly likely that we’re rapidly heading towards a double dip recession. It won’t be tomorrow or this week or even next month, but many warning flags point towards significant deterioration in the U.S. and global economy going forward and so I think that by the end of the year or early 2011, we could very well be facing a new leg down in the world’s economic situation.
We’ll take a look at some of the factors at work but first let’s take a look at the past week and where we stand at Wall Street Sector Selector.
Looking at My Screens
Obviously the volatility that has come back into the markets in recent weeks was in play last week as the Dow experienced its third worst drop of the year on Friday, fast on the heels of Wednesday’s rocket ride up.
This week’s action took our Standard, 2X and Option Master Portfolios to 100% cash as we took profits and cut losses during the week.
Currently our portfolios look like this year to date:
Sector Selector Standard: +7.5%
Sector Selector 2X: -17.8%
Sector Selector Option Master: +47.1%
This week’s positions were closed for the following gains/losses:
VXX: +50.3%
EFZ: +2.8%
YXI: -8.5%
PSQ: -5.3%
EEV: +5.9%
SKF: -12.9%
December S&P Put Option: +29.7%
We remain in the “Red Flag Flying” mode, expecting lower prices ahead. However, almost incredibly, our indicators are moving towards a new “buy” signal that we might see confirmed within the next days or weeks.
A quite likely scenario is a relief, short term rally through August-September, followed by further declines into 4th Quarter and next year.
Whatever happens, we will continue working both the “long” and “short” side of this market that remains unbelievably volatile and challenging.
The View from 35,000 Feet
This week’s action was driven by conflicting forces but ended largely negative, with the S&P 500 unable to break through its 200 Day Moving Average. As we’ve said before, this average is widely viewed as the demarcation line between bull and bear markets, and until or if the major indexes are able to sustain positive momentum above this line, we can consider that we are in a bear market, at least for the short term.
The big catalyst for Friday’s sell off, of…
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We Face Extraordinary Danger and Extraordinary Opportunity
by Chart School - May 31st, 2010 12:45 pm
We Face Extraordinary Danger and Extraordinary Opportunity
Courtesy of John Nyaradi’s Wall Street Sector Selector
As I look across the global landscape today, I see extraordinary danger and extraordinary opportunity.
Danger comes from the deteriorating economic environment at home and abroad and extraordinary opportunity comes from the enormous volatility and opportunities to “short” the market followed by a once in a generation opportunity to “buy dollars for dimes” once a bottom to this market has been reached.
Over the next five years I believe we will see more bankruptcies, both individual and sovereign, than we’ve seen in our history and we’ll also see more millionaires and billionaires created than ever before.
As individuals we will each make one of two choices. We can assume the “deer in the headlights” posture and stash our money under the mattress, or we can educate ourselves, take prudently managed risk and work to take advantage of the enormous opportunities that will present themselves.
Looking at My Screens
This week we saw enormous volatility in every asset class as global forces washed over the markets of the world and investors/traders tried to position themselves on the only side of the market that counts, “the right side.”
The downtrend that started in April is still firmly in place, notwithstanding Thursday’s rally from oversold levels and we remain in the “Red Flag Flying” mode expecting lower prices ahead.
Taking a look at the chart of the S&P 500 we see:
chart courtesy of StockCharts.com
In the chart above, we can see that the S&P remains just below its 200 Day Moving Average which will provide significant resistance while the MACD remains on a sell signal but momentum is turning up. Above the blue 50 Day Moving Average is rolling over and the 200 Day red line is flattening which is also a bearish indicator.
So for the time being, at least, we remain in a bearish configuration, expecting lower prices ahead.
By the way, if you share our view and expectations of lower prices, this week’s mega rally on Thursday presented some extraordinary buying opportunities on the “short” side with relatively low risk at the moment. I’ll be describing these in detail to my subscribers in our Position/Stop Loss Update this weekend.
Members note that this week’s Position/Stop Loss Update will be sent on Monday afternoon due…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site
