Equities opened the session Monday rather flat, with no major economic news to move the markets. Investors were still dealing with the Government shutdown and what impact that may have on the economy. By late morning, there was news that a resolution to reopen the government was pending. This spurred equities higher across the board. Once again, Techs were leading the way and pushing the NDX to new highs. The rally grew as the session wore on and all three major indices ended the day with new record highs. NFLX posted good earnings after the bell and was up8.5%. At the close, the DJIA was up 0.55%, the SPX gained 0.81%, and the NDX added 1%. Breadth was positive, 1.8 to 1, on average volume. ROC(10)’s were mixed, with the DJIA the only index declining. All three major averages continue in positive territory. RSI’s moved higher, with the DJIA continuing to lead at 85.0. The SPX finished at 83.2 and the NDX at 82.1. They remain in near term over-bought territory. All three MACD’s continue above signal. The ARMS index ended at 0.72, a bullish reading at the close. The 2018 rally continues with all three major averages recording new record highs. The NDX was the strongest index on the back of big Techs. The NDX closed at 6906, which was also its high of the session. It is slightly below its upper Bollinger band of 6931. Its first level of near term support, which is its 20D-SMA, is at 6627. The DJIA ended at a new record close of 26214 and traded as high as 26215. Its 20D-SMA is now at 25317. The SPX closed at 2832 and traded as high as 2833. Its upper Bollinger Band is at 2838. Its 20D-SMA is at 2739. The VIX fell 1.9% to 11.05. Near term support for the NDX is at 6900 and 6875. Near term resistance is at 6925 and 6950. Near term support for the SPX is at 2825 and 2812. Near term resistance is at 2837, 2838 and 2850. Europe is mixed in early trade. US Futures are mixed 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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