Contributor Since 2009
Equities opened slightly higher on Tuesday. Factory Orders were just slightly lower than forecast, but had little impact on the averages. The major indices traded in a narrow range, moving into negative territory late morning and then back into the black in the PM. The 10YR held relatively flat, ending at 2.88. There was still some concern over tariffs and investors are waiting for Friday’s Employment report. By the final bell, equities finished with minor gains. The NDX was the strongest of the big three. At the close, the DJIA was up 9.3 points, the SPX added 0.26%, and the NDX was up 0.46%. Breadth was decidedly positive, 2 to 1, on below average volume. ROC(10)’s advanced in the session, with the SPX crossing back into positive territory, joining the NDX. The DJIA remains in negative territory. RSI’s inched higher, with the NDX leading at 57.4. The DJIA ended at 47.2 and the SPX at 50.9. The DJIA and SPX remain with their MACD below signal. The NDX continues to be above signal. The ARMS index ended the day at 1.21, a slightly bearish reading. It was a rather dull day for equities, with volume reflecting the anemic action. The DJIA and SPX continue to reflect some near term technical weakness. They both remain below their 50D-SMA’s of 25281 and 2737, respectively. The SPX inched above its 50% retracement of 2726, closing at 2728. The SPX remains above its 20D-SMA of 2699. The DJIA closed at 24884, just slightly above its 20D-SMA of 24875. It remains just below its 50% retrace level of 25238. The NDX continues to be the best performer near term. It closed at 6770, just above its 61% retrace level of 6748. It continues to hold above other near term technical levels. The VIX fell 1.9% to finish at 18.36. Near term support for the NDX is at 6900 and 6850. Near term resistance is at 6950 and 7000. Near term support for the SPX is at 2699 and 2675. Near term resistance is at 2737 and 2760. Europe is lower in early trade. US Futures are pointing significantly lower in the pre-market.
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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.
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