Time to Nibble on a Financial ETF

It was a gut feeling as much as anything, but it seemed to me that financial stocks were ready for a bit of a resurgence. Watching the UltraShort Financial ETF (SKF) jump and then proceed to plunge on Tuesday was the first tipoff. Seeing that behavior begin to repeat Wednesday morning convinced me that perhaps financials were ready to make a real move up.

Since I had no idea whether this would be a sustained move or not, I elected to open just a small position in the ProShares Ultra Financial ETF (UYG) in mid-morning. It was then a pleasant surprise to see the hard-charging financials lead the market upward in the late afternoon on news that New York State's insurance regulator was encouraging banks to support bond insurers. Combined with Tuesday's surprise rate cut and another rate cut expected when the Fed meets next week, it does seem like a few factors are now falling in line to support the financials after their long decent from their peak last summer.

Having gotten in at $34.11 and watching UYG close at $36.94 Wednesday, I am enjoying seeing the ETF up over 8% already. It remains to be seen, however, whether this move can last.

Comments

[Internet2k4]

In my casual way, I've flipped SKF a couple of times successfully, essentially on daily headlines since last summer. After picking some up around $116 last Thurs I sold at $128 soon after the morning FOMC announcement Tuesday. Good luck with UYG, which should at least hold up until the scheduled FOMC meeting, depending if and how much another rate cut.

[BarryRobbins]

Maybe it is just me, but I think the Fed will not lower rates at the their next meeting, next week. They just lowered 75 basis points, and I think they will want to give that cut some time before lowering again. The market is pricing in another cut, and I think there will be a lot of disappointment when the Fed doesn't follow along. If there is another cut, I would load up on DBC (commodities ETF) or GLD, because inflation is almost guaranteed to follow.

[Internet2k4]

The new (year old) PowerShares double long/short (UUP / UDN) twins are doing a pretty good job of juicing the U$ trend directly - without having to herd the wayward commodity cats. Unfortunately they are verrry thinly traded.