Seeking Alpha

George Kelly's  Instablog

George Kelly
Send Message
The author studied economics at Oregon State University.
  • Playing Investor Sentiment with ETFs 0 comments
    Jun 19, 2011 11:54 PM | about stocks: SPY, DIA, SSO, SPXL, SH, DOG, SDS, SPXS
    In the recent “good news, bad news” market cycle, where the markets seem poised to overreact to every bit of news that hits the wire, I look to take advantage of investor sentiment by investing in broad market, speculative ETFs, in lieu of individual securities.
     
    There are several offerings that allow investors to profit from movement in the underlying indexes in both bull and bear markets. The straightforward ETFs, such as DIA, simply seek to replicate the performance of the underlying index, in this case the DJIA. The inverse ETFs, DOG, for example, seek to replicate the inverse of the performance of the underlying index, here too the DJIA. For a leveraged position, investors can choose an ultra ETF. There are eight choices I like to consider for this strategy:
     
    If I am bullish on the market I will buy the following ETFs:
    • SPY – nonleveraged long position in the S&P 500
    • DIA – nonleveraged long position in the DJIA
    • SSO - 2x leveraged long position in the S&P 500
    • BGU - 3x leveraged long position in the Russell 1000
     
    If I am bearish on the market I will buy the following inverse ETFs:
    • SH - nonleveraged short position in the S&P 500
    • DOG - nonleveraged short position in the DJIA
    • SDS - 2x leveraged short position in the S&P 500
    • BGZ - 3x leveraged short position in the Russell 1000
    The coming week provides several opportunities to gauge investor sentiment. First and foremost, all eyes will be on Greece and investors will be closely monitoring market reactions to news out of the EU. Additionally, the weekly economic calendar presents significant potential for moving the indexes. On tap for the coming week are Bernanke’s assessment of the economy on Wednesday and durable goods orders on Friday.

     
    Economic Calendar
    DateReportConsensusPrevious
    June 21Existing Home Sales4.7M5.05M
    June 23Jobless Claims418,000414,000
    June 23New Home Sales305,000323,000
    June 24GDP Estimate1.8%1.8%
    June 24Durable Goods1.0%-3.6%

    Overall, market sentiment seems to be bearish. Investors appeared to be selling into the rally on Friday after seeing Wednesday's gains erased in Thursday's slide. From a technical perspective, this is a difficult market to time. Nevermind fundamentals, I believe they are largely irrelevant for the next several weeks, until we approach earnings season. That leaves political and economic news as the prime motivator of investor sentiment. Consequently, I prefer the diversification of the index based ETFs.


    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BGZ, SDS, DOG over the next 72 hours.
    Themes: ETFs, Indexes, DJIA, S P 500, Russell 1000 Stocks: SPY, DIA, SSO, SPXL, SH, DOG, SDS, SPXS
Back To George Kelly's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.