Skip to main content

Financials tank but UltraShort ETF is up nicely

Investors were greeted with a barrage of bad news this morning. GM reporting its worst quarter ever including a charge of $39B. Rumors of a $3B to $6B writedown at Morgan Stanley. Gold futures up, the dollar down. Estimates that the value of broken buy-out deals will total $200B this year. Ratings agencies downgrading $92B in corporate bonds. Reports of $5B of defaults in CDOs. Banks like Washington Mutual and Citi continued to garner bad press with conjectures of more writedowns, law suits, etc. Bloggers were starting to use phrases like "perfect storm". Stock futures indicated a big down day on the way.

In thinking about which sector would be hardest hit, it seemed that the financials were about to really take it on the chin. Looking at the Select Sector Financial SPDR (XLF), it is already down about 18% this year. Could it go lower?

I have written about avoiding chasing trends when using sector ETFs. In the case of the financials, the trend has been clearly down for a while now. But surveying the day's news I began to get a knot in my stomach. Yes, I felt, the financials could continue on their downtrend.

After the open, I bought some shares of the ProShares UltraShort Financial ETF (SKF) at $93.46. The ETF closed the day at $99.55 for a 6.5% gain and new 52-week high.

Disclosure: author owns SKF

Comments

Popular posts from this blog

Time to be conservative with your 401K

Most of the posts I and other financial bloggers write are typically focused on individual stocks or ETFs and managing active portfolios. For those folks who are more conservative investors, those whose main investment vehicle is a 401K, for example, the techniques for portfolio management might be a little different. The news of stock markets falling and pundits predicting recession is disconcerting to professional investors as well as to those of us who are watching our balances in an IRA or 401K sag. What approach should the average 401K investor take? Let's assume that the investor is contributing on a regular basis to one of these retirement accounts. There are two questions that the investor needs to ask: 1. Should I stop putting the regular contribution into stocks? My feeling is that investors making regular contributions are being handed a present by the markets. Every week the market goes down, these investors are lowering their average cost. When markets reco...

The Trouble with Trend Reversal Indicators

Many of us use various trend reversal indicators to time our trades. Our desire is to determine when prices have changed direction so that we can ride the new trend. Why doesn't it always work out? The first reason, of course, is that unforeseen events often drive prices in unexpected directions. That is something we can't change and it often makes all of us technical traders crazy. On the other hand, sometimes an unforeseen event is a prelude to a new trend. A stock spikes up on a what seems to be a one-time piece of good fortune and soon falls back. Does it start making its way back up or does it resume a previous down trend? The conflict within trend reversal indicators is that, though they can definitely tell when prices change direction, they suffer from two problems. One, they often can't determine how significant that move in prices actually will be. Two, they are often lagging indicators. As such, they can be late in providing a signal, sometimes leading the investo...

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what...