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Today's Technical Outlook - 9/9/2013

Market Summary

David Chojnacki S1F Market Technician

A poor Employment Report and geopolitical news had the indices moving down in the first half hour. One startling fact is that Labor Participation is now at the same level as 1979. The indices recovered from their early doldrums rather quickly and began to move to the upper levels of the recent trading range. The Nasdaq100 traded above its closing high and came within one point of its early August intra-day high. There was a sell-off in the last hour which left the major averages mixed on the day. At the close, the DJIA was off 14.9 points, the S&P added 0.09 of a point, and the Nasdaq100 closing up 3.4 points. Breadth was positive, 1.5 to 1, on below average volume. For the week, the DJIA was up 0.7%, the S&P added 1.4%, and the Nasdaq100 moving up 1.9%. RSI's were flat on Friday, with ROC(10's) declining. All three major indices developed candlesticks which signal a reversal. The VIX was up 0.5% to close at 15.85. The VIX did not reflect the volatility we saw on Friday, nor does it reflect the geopolitical risk.

Trading Trends

David Chojnacki S1F Market Technician

MAJOR INDICES Short term support and resistance level

DJIA

close 14922

SP500

close 1655

N100

close 3133

14900

15000

1650

1656

3125

3137

14864

15026

1637

1662

3112

3143

14850

15125

1625

1665

3100

3149

14760

15238

1612

1670

3088

3150

14700

15250

1608

1675

3075

3162

14659

15325

1600

1688

3067

3175

14500

 

1588

1700

3062

3188

14479

 

1575

1709

3050

3200

14434

 

1573

1712

 

3212

DISCLAIMER LANGUAGE -ALL PRICES NOTED IN THIS PUBLICATION ARE AS OF THE CLOSE ON TRADING PRIOR TO

TODAY'S DATE, UNLESS OTHERWISE INDICATED

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Data sources include ETF Database, ETFTrends.com, IndexUniverse.com, Google Finance, and Bloomberg data and at times other data sources are utilized. Leveraged, Inverse & Leveraged Inverse Conclusions and Risks 1) Leveraged, Inverse, and Leveraged Inverse (L&LI) ETFs generally capture a high percentage of their expected daily returns, particularly on a net asset value basis. 2) L&LI ETFs are not appropriate for all investors. However, we believe they can be appropriate tools for some investors looking to make short-term tactical trades if they perceive a high likelihood of a strong market move occurring in a relatively short time period. 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. ETFs mentioned at times may have material exposure to small cap and/or international securities that may have higher levels of risk and volatility than other ETFs.

Major Economic Reports Today

Consumer Credit-3:00pm

Long term technicals are positive, and last week's bounce helped to reverse a weakening of the longer term indicators for the DJIA and S&P. We have a mix of two different markets as the Nasdaq100 remains strong and the DJIA and S&P remain weaker. Short term technicals, are positive for the Nasdaq100 and remain with a downside bias for the DJIA and S&P. Above 1675 on the S&P and we will see the bias turn back to the upside. Near term, we are near the top of the recent trading range and without a catalyst to break through the range, technicals suggest we move to the downside. We get retail sales and PPI this week, and all eyes will remain on the Syria. Futures are slightly higher before the open.