The major indices opened mixed and were choppy through the early going. When the averages finally caught a bid to the upside, it was the big techs which were leading the way again. This propelled the NDX to new closing and intra-day highs. AAPL moving to new all-time highs contributed to the NDX, and the other major indices. All three major indices closed at new all-time highs, but the DJIA and SPX were unable to meet their record intra-day highs. Volume fell off in the session. At the close, the DJIA was up 6.1 points, the SPX inched up 3.7 points, and the NDX gained 0.4%. Breadth was just slightly positive, on below average volume. ROC(10)’s advanced in the session, with all three major averages continuing in positive territory. RSI’s moved slightly higher, with the DJIA barely holding its lead at 77.9, with the NDX now at 77.4. The SPX finished at 72.5. All three major indices are now in over-bought territory. The SPX MACD crossed above signal in the session, joining the NDX. The DJIA is the only major index with its MACD remaining below signal. The ARMS index ended the day at 0.97, a nearly neutral reading. Yesterday’s session was typical of so many we have seen in the last few weeks. Once again we had small gains propelling the major indices to new highs. Volume was absent, leading to little conviction to the move. The DJIA closed at 23563 (record high). Intra-day it traded as high as 23575, below the record of 23602. Its 20D-SMA is now at 23304. The NDX also closed with a new record high of 6345. It hit an intra-day record high of 6346. The NDX is up 5.1% since 10/26. The SPX recorded a new closing high of 2594. Its 20D-SMA is now at 2571. The VIX lost 1.1% to finish at 9.78. Near term support for the NDX is at 6325 and 6300. Near term resistance is at 6350 and 6368. Near term support for the SPX is at 2588 and 2575. Near term resistance is at 2600 and 2612. Europe is lower in early trade. US Futures are pointing moderately lower in the pre-market.
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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.
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