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  • Why The Dollar And Stocks Could Start Moving In The Same Direction
    The theme of the global financial markets is now moving more toward the realization that growth will be ultra-slow (if not recession like territory), unemployment will remain persistently high and global economic shocks will continue to roll through. This is an important realization. Up until recently, the consensus has been that each economic shock or event along the way has been holding the world back from a return to normalcy - a full recovery.

    This past week, Europe (NYSEArca:VGK) seems to have dodged another bullet - extending the timeline of Greece (NYSEArca:GREK) and the euro (NYSEArca:FXE) until the next big hurdle, which is a Greek election in April. China (NYSEArca:FXI) revised down its economic growth … and central bankers from Canada and Europe (NYSEArca:IEV) followed the Fed's lead by showing less leaning toward more emergency-like monetary policy.

    The environment now appears to be shifting for financial markets, for the near term. That shift is away from assessing global economic shock risks, and toward assessing which economies will be performing better in a world of sluggish growth. That means we could see markets behaving differently than what has been typical in recent years.


    In the chart below, you can see the key trendline we were watching going into last weekend (the white line) - the line that represents the retracement from the January lows.

    We got a break of this line this past week. And looking back at the double top that was marked at 1.3487, the bearish scenario (NYSEArca:EUO) is appearing to play out for the euro - that is, a scenario where the euro theme starts moving away from imminent blow up risk and toward the realities of recession and austerity riddled economies.

    The Euro's Demise Has Been Set in Motion: Are you protected? "Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors." CLICK HERE to get your Free E-Book, "Why It's Curtains for the Euro"

    I made the point last week, that IF the official interest (i.e. sovereign wealth funds, the Bank for International Settlements, central banks) think that the euro is out of the woods for the moment, they may stop propping it up and start selling what they have accumulated.

    With that scenario in mind, you can see the right shoulder of a bearish head and shoulders forming (in the chart below).

    This pattern, considering a neckline that comes in just below these lows of the week would target a move back to the January lows … in the mid 1.26 area.

    Also supportive of the bearish case, we have the bearish outside day on March 1 that still holds. That was driven by Bernanke's messaging as he spoke to Congress on Feb. 29 and March 1. That message was clearly less QE3 risk. That's dollar positive.

    Now, let's look at the alternative scenario (the bullish scenario). This is the scenario we've been looking at, that argued for a continuation of the EURUSD retracement into the end of March, early April. We got the extension up to nearly 1.35 - just a bit shy of what was projected (the 1.36-1.38 area).

    With the big trend break this week (below the white line in the chart above), the slope of this climb in the EURUSD from January has now flattened some, and the target comes in a bit lower 1.3500 - 1.3750 area. We would need a convincing break below this 1.3080 to take this scenario off the table.

    For now, we've gotten past the debt deal in Greece. And the funding for Greece to rollover its March 20 debt appears to be a done deal. From here, expect the drama to subside for a bit. The next big risk becomes Greek elections in April, when they determine a new government. From there, we will see if they will indeed have the political will to keep pushing through reform and austerity OR if they will reject and attempt to renegotiate. That would put the bailout funds necessary to keep Greece afloat at risk of being pulled (rescinded from the EU/IMF). Also, the other key risk to the euro that will likely emerge in the coming weeks: Ireland (NYSEArca:EIRL) and Portugal will likely come demanding for a write down in their debt. If Greece gets it … why not us.

    If the euro were to bounce from here and keep that trajectory toward 1.3500- 1.3750 area, these issues would throw a big wrench in that continued retracement.

    Overall, the longer term moving averages remain bearish for the EURUSD. If we get below 1.3080 in the EURUSD this week, the euro looks like a currency to sell against everything.

    For a look at the ultimate fate of the euro, be sure to read my new ebook, IT'S CURTAINS FOR THE EURO … you can read it here.


    In the pound, we looked at this long term line last week. The pound has held this long term wedge pattern, and now trades back toward the middle of this wedge. The downside line would target a move to the 2012 lows of 1.5235 area.

    The moving averages remain bearish. On the daily chart, like in the EURUSD, we got a break of this trendline (the white line in the chart below) that represents the move from the January lows.


    We got a similar trend break in the AUDUSD (the white line from the November lows). The AUDUSD came back to that line later in the week (now resistance) and failed.

    Stepping back a bit, the Aussie remains above the 200-day moving average. So the picture here is a bit more mixed.

    And you can see here, the longer term view, the AUDUSD sits toward the middle area of this long term uptrend.


    Some of the favored dollar pairs (EURUSD, GBPUSD, AUDUSD) have less clear pictures for a reason. Because much of market focus has turned squarely toward the yen. Given that the Fed, ECB and BOC have now, in the past week and a half, become notably less leaning toward QE, that fuels even more interest in buying USDJPY (as less QE = higher US yields = a potential for a widening yield differential between the US and Japan = a strong dollar). And given a major imminent economic shock has become much less likely in the past week, the appetite to buy higher yielding currencies against the yen is growing.

    In the longer term chart above, this channel coming in from the 2007 top shows where this trend change we've seen in recent months could take USDJPY. A move to just shy of 100 USDJPY would keep USDJPY in this bearish channel. But given the major policy move by the BOJ to fight a deflation problem they've been battling for two decades - this top channel line will be highly vulnerable to break when it gets there.


    Last week I mentioned that I think people have underestimated the magnitude of this recent BOJ policy change - and the impact on the yen (NYSEArca:FXY). I said "It makes the yen pairs a huge trade opportunity." In this chart below we can see it taking shape, from the big trend break in USDJPY, we now have seen five consecutive higher weekly closes.

    … and the yen crosses have followed.


    Here's a look at the emerging market currencies - with the resurgence of the yen as a funding currency (i.e. rebuilding the yen carry trade) we would expect the emerging market currencies to be rallying…but they didn't participate so much this week

    The emerging market currencies were held back due to broad dollar strength … but mostly because Brazil is ramping up its currency defense. It sees the writing on the wall - i.e. that its currency and other EM currencies are vulnerable to big run higher, as part of the need for global economic rebalancing.

    S&P 500

    Finally a look at stocks (NYSEArca:SPY) here….

    We are seeing more of this breakdown of the risk-on/risk-off dynamic. On Friday, the EURUSD got clubbed, but stocks grinded higher.

    Stocks here look to make a significant technical breakout (NYSEArca:SSO) if we get above 1378 next week. This red line that broke (in the chart above), which coincided with many of the trendline breaks in currencies this past week, has failed. Stocks now trade back above that line and look poised to take out the 1378 highs.

    This correlation break-down of the risk-on/risk-off dynamic is evident in global yields and across other currencies. These behaviors continue to represent a world where monetary policy is ultra-easy and growth has a persistently sluggish outlook. With that, the market is beginning to focus on outperformers, instead of throwing everything in the risk-on/risk-off bucket.

    I think the USDJPY trade also plays into the bull case for stocks here. As global investors continue to plow into USDJPY, they use the dollars to buy stocks … and likely treasuries as well. That keeps US yields contained around historic lows and stocks grinding higher.

    PS: Despite the drama surrounding bailouts in Europe, the euro still has a very grim outlook. I've just penned a new E-Book titled It's Curtains for the Euro, detailing why I think its ultimately doomed - you can read it here.

    Want to subscribe to Global ETF Monthly? To help you through this next wave of global financial crisis that is coming, I'd like to invite you to join my new monthly advisory service Global ETF Monthly. In this monthly publication I share my unbiased research and opinion on the hottest and safest ETF investments, to help you grow your wealth and protect it. Join now! Just click here ….

    Bryan Rich began his trading career with a $600 million family office hedge fund in London. Later, he was a senior trader for a $750 million leading global hedge fund in South Florida. There, he helped manage and trade a multi-billion dollar foreign exchange options portfolio. Bryan is the lead analyst of Global ETF Monthly a monthly electronic investment newsletter published by ETF Daily News. Global ETF Monthly focuses on providing the best insight and advice on global investment opportunities by utilizing easy-to-trade exchange traded funds (ETFs).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 12 4:47 PM | Link | Comment!
  • ETFs: Variety Is The Spice Of Life With Leverage, Too? (FAS, FAZ)

    Exchange Traded Funds exploded onto the investment scene in 1993, and after less than two decades, the breath, depth and shear number of fund types, now at 1,000 and counting, continue to expand on exchanges in the United States today.  An ETF represents a basket of stocks that attempts to mirror a specific index or sector in the market.  They are a cleverly designed blend of stocks and mutual funds.  The shares trade daily, just as with any other stock, but unlike mutual funds that trade once at end-of-day pricing.  Their popularity stems from benefits related to their tax efficiency, cost structure, varied assortment, flexibility and built in diversification. 

    ETFs are also not restricted to just stocks.  Commodities and currencies also have their own ETFs, as well as foreign indexes.  You may want to refresh your knowledge of currencies with a forex trading guide since many of the foreign-based indexes will involve currency conversions in their valuations.  Gold, oil and energy issues include many international companies in their portfolios for example.

    At latest count, there appears to be at least eleven definable categories for this innovative investment vehicle.  Number ten on the hit parade is an “inverse” ETF.  An inverse exchange traded fund is assembled by combining various assets with derivatives and options to create profits when the underlying index declines in value.  Basically, it’s an index ETF that gains value when the correlating index falls.  It offers the possibility of being short in a sector of the market without the worry of a margin call.  However, these funds have not been popular making liquidity a real concern.

    Creativity from the investment community does not stop with inverse ETFs.  The eleventh fund innovation is a “leveraged” ETF.  Leveraged funds have been around since the early 1990s, but a leveraged ETF was not introduced until 2006.  Leveraged ETFs are designed to include the securities in the underlying index, derivatives and debt in such a way that the return on the fund should be a multiple of the return on the index, typically targeted at “2x” or “3x” the return.  These techniques have been used historically by Institutional Investors with great success.

    Direxion is a company devoted to complementing core investment strategies of the sophisticated investor with tools that “may be used to hedge portfolio positions or seek profits from cyclical upward or downward market movements, all techniques which may add incremental risk-adjusted performance to your portfolio.”  They offer a variety of leveraged ETFs.  Two examples are the Direxion Daily Financial Bull 3X Shares ETF (NYSE:FAS) and the Direxion Daily Financial Bear 3X Shares (NYSE:FAZ).  Each attempts to target a 300% return on the Russell 1000 Financial Services Index.  By providing both Bull and Bear versions of each of the indexes, Direxion gives investors the ability to seek competitive returns in rising and falling markets across a wide spectrum of diversified assets.

    These funds and others like them are new and constantly evolving, but controversy surrounds their usage.  First, there is a misconception that returns are on an annual basis, which is untrue.  Funds are designed to provide multiple gains on a daily basis.    This design can also produce negative multiple returns, a fact often overlooked when expectations are for profits.  Lastly, the complexity of these funds and their management requirements cause tracking errors that are difficult to reconcile over a limited number of fund participants. 

    Leveraged ETFs are considered to be an advanced investment strategy.  Although the usage of most ETFs is simple and straight forward, the leveraged variety involves a great deal more complexity requiring more due diligence before their use.  They generally should be “tools” reserved for use by sophisticated investors, who can discern their subtle qualities and take advantage of the benefits they offer.  However, investors of this type would most likely have the intellectual acumen to construct a leveraged portfolio on their own and to their own personal liking if the necessity arose.

    Written By Cesar Zambrano From Forex Fraud (A Contributor to ETF Daily News)

    Here are some more details on the Direxion Shares Daily Financial Bull 3X ETF (NYSE:FAS) and the Direxion Shares Daily Financial Bear 3x ETF (NYSE:FAZ) below.  Be sure to visit our ETF categories for each ETF with more articles and insight on each fund.

    Direxion  Daily Financial Bull 3X ETF (NYSE:FAS) VISIT OUR (FAS) CATEGORY: HERE

    The Financial Bull 3X Shares seeks daily investment results, before fees and expenses, of 300% of the price performance of the Russell 1000® Financial Services Index (“Financial Index”). There is no guarantee the fund will meet its stated investment objective. The Russell 1000® Financial Services Index is a capitalization-weighted index of companies that provide financial services. As of April 30, 2008, the Index had 227 components, derived from the Russell 1000 Index with an average market capitalization of over $11 billion dollars and a median market capitalization of $4.4 billion dollars. One cannot directly invest in an Index.

    Chart forDirexion Daily Financial Bull 3X Shares (<a href='' title='Direxion Russell 1000 Financials Bullish 3X ETF'>FAS</a>)

    Direxion Daily Financial Bear 3x ETF (NYSE:FAZ) VISIT OUR FAZ CATEGORY: HERE

    The fund seeks daily investment results, before fees and expenses, of 300% of the inverse of price performance of the Russell 1000 Financial Services index. The fund normally creates short positions by investing at least 80% of net assets in financial instruments that, in combination, provide leveraged and unleveraged exposure to the index. It is nondiversified.

    Chart forDirexion Daily Financial Bear 3X Shares (<a href='' title='Direxion Russell 1000 Financials Bearish 3X ETF'>FAZ</a>)

    Related posts:

    1. Quantifying 3X Leverage ETF Performance vs. Target Index (FAS, FAZ, BGU, BGZ, ERX, ERY) (26.391)
    2. Leveraged ETFs Are Some Of The Professional Trader’s Favorite Tools (FAS, FAZ) (17.384)
    3. Leveraged ETF’s Have Become A Day Traders Dream Come True (FAS, FAZ) (16.558)
    4. Are You Betting On A Rebound With Leveraged ETFs? (DXD, SDS, QID, FAS, TNA, MWJ, TYH, FAZ, TZA, MWN, DDM, SSO, DIG, USD, URE) (15.656)
    5. Direxion Shares Lists Leveraged ETFs on NYSE Euronext’s European Market (14.597)

    Disclosure: No Positions
    Jul 14 6:14 PM | Link | 3 Comments
  • Apple’s (AAPL) Stock Is Currently The Number One Company Held By ETFs

    Apple Inc. (Nasdaq:AAPL) one of the most innovative and growing companies in the world currently tops the list in assets held by Exchange traded funds (ETFs).  A whopping $7.8 Billion dollars of Apple’s Stock (AAPL) is held in ETFs ranging from technology heavy ETFs to large cap ETFs throughout the marketplace.  Exxon Mobil (NYSE:XOM) and Microsoft (NASDAQ:MSFT) take the second and third spot on the list with $7.1 Billion and 5 Billion respectively in value held.

    Steve Jobs the CEO of Apple (Nasdaq:AAPL) continues to surprise investors with the release of stunning new products and a great return on investment for shareholders.  Apple’s latest release, the fourth generation iPhone (iPhone 4), is set to go on sale June 24th.  The new device has a homegrown processor like the one used in the iPad and a bigger battery that offers up to seven hours of talk time, six hours of 3G browsing, and 300 hours of standby. It also comes with a new 5 megapixel camera that can record video in high-definition.  This new phone, combined with the revolutionary new iPad should further catapault the bottom line for Apple.  Marguerite Reardon from CNET foreshadows the impact of the new iPhone by saying, “With allthese new features and more, there’s no question that many existing iPhone, iPhone 3G, and iPhone 3GS users will be chomping at the bit to get a new iPhone 4 when it hits store shelves later this month”

    With Apple (Nasdaq:AAPL) currently being the most widely held company in ETFs, investors obviously have many choices for exposure in Apple.  Among these choices, one ETF stands out among the rest as the Apple heavyweight.  The PowerShares QQQ ETF (NASDAQ:QQQQ) which tracks the Nasdaq 100 and maintains a whopping 18.83% of its holdings in Apple’s stock is a very liquid and high profile ETF.  The QQQ’s ETF which has been around for over a decade, can attribute much of its success to Apple.  Since the 2009 March lows Apple has risen in upwards of +80% whereas the PowerSharesQQQ ETF is up about 50% compared (see the chart below).  While returns have been greater in Apple over the long haul, diversification with the QQQ’s ETF helps protect investors from an unexpected turn in Apple’s stock while still having great exposure. Visit our PowerShares QQQ ETF (NASDAQ:QQQQ) Category for more commantary on the ETF.

    Here is a current list of the top 20 companies sorted by assets held in ETFs below for you to take a look at. (As of 6/10/10)

    RankStockAmount Held by ETFs% of Stock’s Mkt. Cap.
    #1(AAPL)$7,865,525,721.48 3.47% 
    #2(XOM)$7,153,685,861.99 2.49% 
    #3(MSFT)$5,026,386,742.99 2.28% 
    #4(NYSE:IBM)$4,353,402,119.48 2.74% 
    #5(NYSE:CVX)$4,349,852,289 3.05% 
    #6(NYSE:JNJ)$4,172,360,843.17 2.58% 
    #7(NYSE:PG)$4,117,232,244 2.30% 
    #8(NYSE:BAC)$3,538,050,030.38 2.30% 
    #9(NASDAQ:CSCO)$3,360,787,596.77 2.56% 
    #10(NYSE:JPM)$3,256,945,448.36 2.17% 
    #11(NYSE:T)$3,240,340,033.73 2.20% 
    #12(NYSE:GE)$3,226,849,637.36 1.95% 
    #13(NYSE:WFC)$3,224,603,490.24 2.23% 
    #14(NASDAQ:GOOG)$3,151,506,029 2.65% 
    #15(NASDAQ:INTC)$3,122,049,739.57 2.78% 
    #16(NYSE:AMX)$2,999,342,701 3.86% 
    #17(NYSE:KO)$2,783,430,239.69 2.34% 
    #18(NYSE:WMT)$2,781,823,263.2 1.48% 
    #19(NYSE:PFE)$2,701,008,820.27 2.30% 
    #20(NYSE:MRK)$2,617,675,654.79 2.48%

    Chart forApple Inc. (<a href='' title='Apple Inc.'>AAPL</a>)

    We have also put together some details on the PowerShares QQQ ETF (NASDAQ:QQQQ) including a list of the top companies within the ETF below:

    PowerShares QQQ ETF (NASDAQ:QQQQ)

    PowerShares QQQ™, formerly known as “QQQ” or the “NASDAQ- 100 Index Tracking Stock®”, is an exchange-traded fund based on the Nasdaq-100 Index®. The Fund will, under most circumstances, consists of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The portfolio is rebalanced quarterly and reconstituted annually.

    CompanySymbol% Assets
    Apple Inc.(AAPL)18.83
    Microsoft Corporation(MSFT)4.48
    Google Inc.(GOOG)4.29
    QUALCOMM Incorporated(NASDAQ:QCOM)4.22
    Cisco Systems, Inc.(CSCO)2.77
    Oracle Corporation(NYSE:ORCL)2.76
    Intel Corporation(INTC)2.36
    Teva Pharmaceutical Industries(NYSE:TEVA)2.30, Inc.(NASDAQ:AMZN)2.16
    Research In Motion Ltd.(RIMM)1.96

    Chart forPowerShares QQQ (QQQQ)

    Disclosure: No Positions
    Jun 11 1:04 PM | Link | Comment!
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