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Kevin Grewal
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Kevin Grewal is the founder, editor and publisher of ETF Tutor as well as serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent... More
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  • 4 Reasons Gold Will Keep Luster
    As fear continues to hover over the global markets, investors continue to seek the ultimate safety blanket, gold, pushing the precious metal north of $1,200 per ounce and pulling gold related equities along the way. 
    Typically, this time of the year is slow for gold, however, the highly sought after commodity has been on the move, causing some analysts to call the shiny metal the world’s new currency reserve and hint that this elevated trend is likely to continue.  
    Despite the recent $1 trillion bailout move in Europe, continued concerns about the overall Euro Zone’s fiscal health and strength of its currency continue to add concern in the region and overall market stress. In fact, the massive infusion of currency has raised questions about whether the Euro Zone has increased its exposure to risk, rather than bailing out its troubled nations. Additionally, the debt problems in nations like Greece, Portugal and Spain are so severe that a $1 trillion solution will not ratify the situation overnight or mitigate the risks in the region.
    A second force that is likely to support gold prices is the slow and steady recovery of the U.S. economy. Granted, employment numbers are improving, as illustrated by the fourth straight weekly decline in first-time claims for jobless benefits, but the Fed continues to print money to support the recovery efforts.   In fact, the Fed doesn’t expect the overall unemployment picture to significantly improve until sometime next year. 
    To add more stress to the U.S. fiscal overview, the U.S. trade deficit continues to widen. The Commerce Department recently reported that the trade gap rose to a seasonally adjusted $40.4 billion in March, illustrating that imports continue to supersede exports. This imbalance generally carries trading costs which could further dampen the stability of the U.S. dollar. 
    Lastly, gold continues to defy the trends of only rising when the U.S. dollar falls or risk appetite diminishes. This indicates that investors are utilizing the precious metal as more than just an insurance policy and could potentially see it as “the golden ticket” asset which holds its value.
    Some ways to play gold include:
    ·         The SPDR Gold Trust (GLD), which is backed by physical gold bullion. GLD closed at $121.40 on Wednesday.
    ·         The Market Vectors Gold Miners ETF (GDX), which holds companies involved in gold mining. The industry is likely to see healthy margins in the near future due to a moderation cost structures which were previously seen and caused by upgrades in mines, heightened labor costs and rising energy prices. GDX closed at $53.43 on Wednesday.
    ·         PowerShares DB Gold Fund (DGL), which holds futures contracts in gold. DGL closed at $44.29 on Wednesday.
    When investing in gold, it is equally important to keep in mind the inherent risks and volatility that are involved. To help protect against these, the use of an exit strategy which identifies specific price points at which an upward trend could come to an end in the mentioned equities is important. 
    According to the latest data at www.SmartStops.net, an upward trend in the mentioned ETFs could come to an end at the following price points: GLD at $116.24; GDX at $49.16; DGL at $42.57. These price points change on a daily basis as market conditions fluctuate and are reflective of market volatility. Updated data can be found at www.SmartStops.net. 
     


    Disclosure: Long GDX, DGL
    Tags: GLD, GDX, DGL, Gold, Precious Metals
    May 13 10:46 AM | Link | Comment!
  • Four Plays On Europe’s Nuclear Option
    By Kevin Grewal
    As somewhat of a last resort to save the Euro and prevent another catastrophic economic event, the European Union, the International Monetary Fund (IMF) and other major Central Banks have implemented a $1 trillion emergency package.
    This package consists of 440 billion Euros in guarantees from euro area states, 60 billion Euros in a European stabilization fund which can be drawn upon to provide aid to euro zone states, 250 billion Euros from the IMF, bond purchases and currency swap programs by the U.S. Federal Reserve and other Central Banks. The plan has already gone into action; with all euro zone banks purchasing sovereign bonds in the open market, in particularly the PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain).
    The reaction to this measure was relatively drastic, as global markets soared. The Dow Jones Industrial Average gained more than 400 points; the Euro gained nearly 3 percent in intraday trading; risk premiums on peripheral euro zone sovereign bonds plummeted; the price of insuring euro zone sovereign bonds against default declined and investors sold safe-haven debt and increased their appetite for risk, illustrated by a decline in German bund futures. 
    This agreement, called “the nuclear option” ensures that all measures are being taken to stabilize the Euro and the euro zone, opening the possibility of opportunity in the following equities:
    ·         CurrencyShares Euro Trust (FXE), which closed at $127.51 on Monday.
    ·         SPDR Euro STOXX 50 (FEZ), which allocates nearly 19% of its asset base to the PIIGS. FEZ closed at $35.10 on Monday gaining more than 10% over the day.
    ·         iShares MSCI EMU (EZU), which allocates nearly 15.4% of its assets to the PIIGS. EZU gained nearly 10% on Monday closing at $32.52.
    ·         SPDR Barclays Capital International Treasury Bond (BWZ), which allocates 17.5% of its asset base to the PIGS. The breakdown is as follows: Italy, 11.8%, Spain, 3.5%, Greece, 2.2%. BWZ closed at $34.19 on Monday, adding nearly 1.6%.
    Although this emergency financial package which includes stand by funds and loan guarantees seems like a good resolution, it will only be effective and sustainable if Europe’s weakest economies can manage their debt and the European Union can develop more coherent economic and fiscal policies to underpin the Euro.  
    These forces, in addition to the volatility of the region, make it important to have an exit strategy which identifies specific price points at which an upward trend could come to an end in the mentioned equities. 
    According to the latest data at www.SmartStops.net, an upward trend in the mentioned ETFs could come to an end at the following price points: FXE at $126.78; FEZ at $33.56; EZU at $31.05; BWZ at $32.86. These price points change on a daily basis as market conditions fluctuate and are reflective of market volatility. Updated data can be found at www.SmartStops.net. 


    Disclosure: No Positions
    Tags: FXE, FEZ, EZU, BWZ, Europe, Euro
    May 10 10:16 PM | Link | Comment!
  • Financial ETFs Impacted By Derivatives Trading Proposal
    Financial ETFs, Impacted By Derivatives Trading
    In response to the financial crisis which nearly crippled the U.S. economy and the questionable business practices at one of the world’s most successful financial institutions, Goldman Sachs (GS), President Obama and his administration is determined to provide better financial regulation which will likely influence the financial industry.
    The U.S. Senate has already passed two amendments which are aimed at setting up a new government protocol for seizing and dismantling large financial firms that are in distress, overcoming the “to big to fail” philosophy.   In the proposed bills, which are expected to be enacted into law within the next few weeks, the Federal Deposit Insurance Corporation (FDIC) will be able to manage an “orderly liquidation” process for troubled firms that would pose a risk to the banking system if they were to collapse.
    A second part of these amendments lessens risks by restructuring how major banks trade derivatives and by requiring most derivative contracts to be cleared by a clearinghouse, through the Wall Street Transparency and Accountability Act. This Act may also require that derivatives be traded through public exchanges. 
    Some suggest that derivatives were the primary driver behind the financial meltdown. Derivatives are often used as hedging tools or a way to gained amplified exposure to certain equities, bonds or commodities, and hence carry more risk than traditional securities. 
    The financial legislation which would require banks to leave the lucrative business of derivatives trading and has passed the House will have a significant impact on the following ETFs:
    ·         Financial Select Sector SPDR (XLF), which boasts the nation’s five largest banks, who dominate trading in derivates, Goldman Sachs (GS), Bank Of America (BAC), JP Morgan Chase (JPM), Citigroup and Wells Fargo (WFC). XLF closed at $15.09 on Friday.
    ·         Vanguard Financials ETF (VFH), which too holds all five of the banks that dominate trading in derivates, as well as other firms involved in derivatives trading like Morgan Stanley (MS). VFH closed at $30.89 on Friday.
    ·         iShares Dow Jones US Financial Sector (IYF), which too allocates a significant portion of its assets to the five largest banks mentioned above. IYF closed at $54.21 on Friday.
    Due to the impact that this legislation could have on these ETFs and their holdings, implementing an exit strategy is a good way to mitigate the risks involved. 
    According to the latest data at www.SmartStops.net, an upward trend in the mentioned ETFs could come to an end at the following price points: XLF at $14.41; VFH at $28.13; IYF at $51.83. These price points are reflective of market changes and volatility and are updated daily.


    Disclosure: No Positions
    Tags: XLF, VFH, GS, JPM, BAC, MS, WFC, IYF, Financials
    May 09 11:03 PM | Link | Comment!
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