Skip to main content

Market still in no man's land -- or why I haven't bought any double short ETFs

Markets had pulled back to the point where they were flirting with a "correction" - a decline of 10% or more. The NASDAQ had already achieved that dubious distinction.

I have written a good number of posts defending the use of ProShares leveraged ETFs including the inverse or short variety. And I put my money where my mouth is - I almost always have one or two ProShares ETFs in my portfolio.  This time, however, is different.

As stocks dropped, the double long Ultra ProShares ETFs in my portfolio hit stops and were sold. But I could not immediately switch over to the double short ETFs. The reason why can be summed up in one word: trend.

Look as this weekly chart of the NASDAQ 100. I have drawn two trend lines on it and both lines reflect the bullish trend that has been in place for the last year.


The green trend line starts at the March 2009 low and touches the early February 2010 low. According to this trend line, the NAZ has broken to the downside but has nearly recovered. So it is unclear if this is a true change in trend, from bull to bear.

The March 2009 low was a really extreme point so it's validity in trend analysis may be questionable. The blue line, therefore, identifies an alternate trend line, one that starts at the mid-July 2009 low and touches the same early February 2010 low. According to this analysis, the NASDAQ 100 touched the trend line last week and, after Monday's powerful rally, is now comfortably above it again. Note that the index is now between the two trend lines and also above the support line at 1900.

My personal investing style, as you may have guessed, requires being comfortable that a definite trend is in place. I'm not particularly enthusiastic about very short-term trades, even with leveraged ETFs.

As I look at a chart like that above, I am not confident that the bullish trend has given way and that a new bearish trend has been established. The result is that, while I wait for confirmation on the direction of the latest trend, I can't yet commit to the ultra short ETFs.

Dislcosure: no positions

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. 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 ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional