U.S. Equities About to Break Out

by: Yatin Karnik

U.S. stocks were hacked on Thursday afternoon as investors digested news that another 7.1 magnitude earthquake had rocked Japan, with the Dow Jones industrial (AIA) average down 17.26 points, or 0.14%, to end the day at 12,409.79. The S&P 500 (SPY) Index was fractionally lower by 2.03 points, or 0.15%, to finish the day at 1,333.51. Nasdaq (QQQ) was down 3.68 points, or 0.13%, to close at 2,796.14.

Crude-oil futures have been on a rise for past few trading sessions. On Thursday Oil futures came strikingly close to $111 a barrel on the New York Mercantile Exchange, hitting their highest level in 31 months. Speculative-buying as the end of floor trading approached carried prices to new highs. Traders expect Oil futures to continue to rise in coming weeks. To gain from rise in Crude Oil prices, I recommend getting long exposure to UCO (ProShares Ultra Oil fund) or getting short exposure to SCO (ProShares UltraShort Oild Fund).

On Capitol Hill, the lack of agreement between the republicans and democrats threatens a government shutdown. House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev., were expected to meet with President Barack Obama Thursday evening to reach a compromise in order to avoid government shutdown. Over last couple of trading sessions, the U.S. Bonds have been going up. In my opinion the best risk/reward is presented by shorting U.S. Treasuries. I recommend getting long exposure to TBT (ProShares UltraShort 20+ Year Treasuries).

The S&P 500 index is at 1,333 which is considered an important inflection point. If S&P manages to close above 1,333 on Friday, most traders expect an explosive move higher in coming week. I recommend benefiting from climb in S&P by getting long exposure to SPY or SSO (ProShares Ultra S&P). You could also benefit by getting short exposure to SDS (ProShares UltraShort S&P). Incase S&P breaks out to the upside, I have no reason to believe that Dow Jones Industrial average won't make new highs. To benefit from rise in Dow, I recommend getting long exposure to DIA or DDM (ProShares Ultra Dow). You could also double the return from rise in Dow Jones Industrial from getting short exposure to DXD (ProShares UltraShort DOW).

Disclosure: I am long SPY.