David Chojnacki S1F Market Technician
The indices broke out to the upside at the opening bell and continued in that direction for the first hour. Sellers took over after 10:30am and it was a slow drift downwards into the final bell. It was another session of narrow trade with minor gains at the close. At the close, the DJIA tacked on 0.4%, the S&P added just 3.8 points, and the Nasdaq100 was up 0.3%. Breadth was positive, 2.2 to 1, on below average volume. RSI's were up slightly and ROC(10's) advanced and remained positive. MACD's remained above signal. For several sessions, the major averages have traded in a very narrow range. The S&P had traded between 1451 and 1467 in the last 5 sessions. The Nasdaq100 in the last 6 sessions has traded between 2703-2750. The S&P continues within several points of its recent high and September 2012 high of 1465. We re-iterate the concern that the Nasdaq100 which has been the Market leader since 2009, is lagging the S&P. Perhaps it's time for a new leader to emerge and we would expect that the next several sessions may shed some light on this. The Nasdaq100 did close a couple points above 2725, which had been providing resistance. We see more formidable resistance in the 2750-2800 congestion area. Support now sets up at 2725 and 2712. Not much change in technicals for the S&P, as the September closing high of 1465 continues to provide near term resistance. Above 1465, we should see 1475 providing some resistance. Support continues to set up at 1450 and 1435. The VIX finally made a move to the upside, but it was a small 1.4% gain. Volatility remains extremely low. European markets are mixed this morning and little changed. European banks keep rates unchanged this morning. We get Claims numbers this morning and should begin to get a view of how employers are seeing their needs in the new year take shape. Futures are up slightly this morning versus fair value.
Major Economic Reports Today
Initial/Continuing Claims-8:30am NatGas Inv.-10:30am
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In strong trending markets, being on the right side of the "trade" with L or LI ETFs can lead to very strong returns. 3) Investors should not expect these ETFs to deliver total returns linked to their benchmarks over any period other than daily. The effects of compounding and the daily re-leveraging or de-leveraging that occurs with L&LI ETFs can lead to unexpected results over the long term. As a result, we believe longer-term investors should consider regularly rebalancing positions. 4) Trendless markets, particularly those with a high level of volatility, can lead to substantial relative underperformance of L&LI ETFs. 2) Leveraged and Leveraged Inverse (L&LI) ETFs typically utilize futures and equity swap agreements. The use of these derivative instruments increases risk and enhances the possibility of tracking error. Relative to traditional ETFs, leveraged, inverse and leveraged inverse ETFs typically have higher costs and lower tax efficiency. 3) The effects of compounding can lead to significant deviations from traditional benchmarks over longer time periods. For example, if $100,000 is invested in an index that increases in value by 10% on day one and then decreases in value by 10% on day two, the investment will be worth $110,000 at the end of day one and $99,000 after day two. However, the value of a security that doubles the daily performance of the index would be worth $120,000 on day one and $96,000 after day two. Thus, the index is down 1% after two days, a doubling of which would be down 2%. However, the security attempting to double the return of the index is down 4%. Investors should consider carefully the potential impact over longer periods. MLP and MLP ETF Risks Individual MLPs are publicly traded partnerships that have unique risks related to their structure. These include, but are not limited to, their reliance on the capital markets to fund growth, adverse ruling on the current tax treatment of distributions (typically mostly tax deferred), and commodity volume risk. For tax purposes, MLP ETFs are taxed as C corporations and will be obligated to pay federal and state corporate income taxes on their taxable income, unlike traditional ETFs, which are structured as registered investment companies. These ETFs are likely to exhibit tracking error relative to their index as a result of accounting for deferred tax assets or liabilities (see funds' prospectuses). The potential tax benefits from investing in MLPs depend on their being treated as partnerships for federal income tax purposes and, if the MLP is deemed to be a corporation, then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the fund which could result in a reduction of the fund's value. MLP funds accrue deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments; this deferred tax liability is reflected in the daily NAV; and, as a result, the MLP fund's after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked. Commodity ETF Risks Commodity ETFs may be subject to greater volatility than traditional ETFs and can be affected by increased volatility of commodities prices or indexes as well as changes in supply-and-demand relationships, interest rates, monetary and other governmental policies, or factors affecting a particular sector or commodity. Currency ETF Risks Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations.