The market opened lower on Friday after five straight days to the upside. Economic news was mixed on Friday as equities began moving to the upside through the mid –morning hours. The afternoon trade was choppy and by the end of the day the DJIA and SPX were able to eke out small gains. The NDX finished with a small loss, breaking its string of gains. Options were expiring on Friday, which usually increases activity, however, volume was normal on Friday. At the close on Friday, the DJIA was up 19 points, he SPX added just 1 point, and the NDX fell 0.36%. Breadth was positive, 1.4 to1, on average volume. RSI’s were flat in the session, with all 3 major indices in the lower 50’s. MACD’s are below signal for all three major indices. The NDX ROC(10) crossed into positive territory, while the DJIA and SPX remain negative. For the week: DJIA added 4.2%, the NDX gained 5.5%, and the SPX was up 4.3%. The VIX was up slightly on Friday to 19.46, but fell 33% for the week. Economic reports are light this week.
Long term, the upside bias continues, as equities reversed their correction last week. It was a strong week for equities. The major indices have now moved back comfortably above their 200D-SMA’s: DJIA-22893, NDX-6112, SPX-2546. They also moved back above their 1Yr trend-lines. Short term, the bias is attempting to reverse to the upside. All three major averages moved back above their 50D-SMA’s. We also saw the SPX and NDX retrace more than 50% of the recent correction. Near term, the major averages remain with their MACD below signal. The DJIA and SPX remain below their 20D-SMA’s of 25440 and 2750, respectively. The NDX moved above its 20D-SMA of 6752. Europe is mixed in early trade. US Futures are pointing lower 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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