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Some interesting things going on with ProShares ETFs this past week. Every now and then for the last few weeks I have been presenting a list of the ProShares ETFs that have exhibited the strongest performance over the course of the last week or have registered the biggest increase in volume.  Since these ETFs are primarily short-term trading vehicles and, as such, can be viewed as indicators of short-term sentiment, looking at the leaders among them can paint a picture of those areas of the market in which short-term investors are currently most interested. Looking back over the course of the previous week, the five ETFs with the biggest gains were: Symbol Fund Name Group Objective Percent Change - Price Percent Change -  Avg Volume EFO Ultra MSCI EAFE Ultra 200% of the underlying 12.7% 176.8% EET Ultra MSCI Emerging Markets Ultra 200% of the underlying 11.5% 16.1% XPP Ultra FTSE/Xinhua China 25 Ultra 200% of the underlying 10.9%...

For the last couple of weeks I have been presenting a list of the ProShares ETFs that had exhibited the strongest performance over the course of the last week. I received a number of comments over at Seeking Alpha requesting that I do it again but I haven't had much reaction since then. If you find this useful please leave a comment and let me know! A short recap on  leveraged ETFs and why I look at them -- The ProShares leveraged ETFs are primarily short-term trading vehicles and, as such, they can be viewed as indicators of short-term sentiment. Since these ETFs come in so many styles and sectors, looking at the leaders among them can paint a picture of those areas of the market in which short-term investors are currently most interested. The following table lists those members of the ProShares family that have turned in the best performance over the course of the last week (the period from last Tuesday through this Monday). The last two weeks the criteria included any ET...

Last week I presented a list of the ProShares ETFs that had exhibited the strongest performance over the course of the last week. I received a number of comments over at Seeking Alpha requesting that I do it again so here it is. Purpose -- The ProShares leveraged ETFs are primarily short-term trading vehicles and, as such, they can be viewed as indicators of short-term sentiment. Since the ETFs come in both styles and sectors, this analysis might shed some light on how investors currently view large caps, small caps, sectors and indexes. The following table lists those members of the ProShares family that have turned in the best performance over the course of the last week (the period from last Tuesday through this Monday). The criteria is that any ETF with double-digit gains makes the list. This week I also add a measure of volume where I compare this week's average volume to the previous week's average volume. Increased volume may confirm increase in price as an indic...

It's no secret this market has increased in volatility lately. In this post we look for signs of sector momentum in the short term moves of the ProShares leveraged ETFs. These favorites of traders, individual investors and institutions alike have been used as hedges, contrarian indicators, momentum plays and vehicles to juice up portfolios. The following table lists those members of the ProShares family that have turned in the best performance over the course of the last week (the period from last Tuesday through this Monday): Symbol Fund Name Group Objective Percent Change JPX UltraShort MSCI Pacific ex-Japan Short 200% of the Inverse 7.9% SJH UltraShort Russell2000 Value Short 200% of the Inverse 7.7% SMN UltraShort Basic Materials Short 200% of the Inverse 7.7% SRS UltraShort Real Estate Short 200% of the Inverse 7.6% SIJ UltraShort Industrials Short 200% of the Inverse ...

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 re...

ProShares announced that it will execute reverse share splits on nine ProShares ETFs. Here are the details: Ticker Fund Split Ratio Price DUG UltraShort Oil & Gas 1:5 $11.22 EEV UltraShort MCSI Emerging Markets 1:5 $9.37 FXP UltraShort FTSE/Xinhua China 25 1:5 $7.15 GLL UltraShort Gold 1:5 $9.02 SMN UltraShort Basic Materials 1:5 $6.56 SRS UltraShort Real Estate 1:5 $5.62 URE Ultra Real Estate 1:5 $8.66 UYG Ultra Financials 1:10 $7.36 ZSL UltraShort Silver 1:10 $3.77 The splits take effect after the close on April 14. Here's the reason for doing the reverse splits according to ProShares: For funds with lower nominal prices, bid-ask spreads represent a higher percentage of the transaction price than for higher-priced funds, increasing both costs and volatility — even when the spread is tight. ProShares believes the reverse splits will adjust the share prices to a...

The SEC has decided to take a closer look at derivatives as they are used by ETFs and mutual funds. Here is what the SEC has said: "Pending the review's completion, the staff has determined to defer consideration of exemptive requests under the Investment Company Act to permit ETFs that would make significant investments in derivatives. The staff's decision will affect new and pending exemptive requests from certain actively-managed and leveraged ETFs that particularly rely on swaps and other derivative instruments to achieve their investment objectives. The deferral does not affect any existing ETFs or other types of fund applications." I used to write regularly about ProShares leveraged ETFs. Under the hood, leveraged ETFs, both the 2X or 3X and inverse 2X or 3X, make extensive use of derivatives. Swaps of one kind or another are commonly utilized to achieve results that are multiples of an underlying index. Let's look at the ProShares Ultra QQQ ...

I know that it really isn't proper to do technical analysis on leveraged ETFs. I know that it is always better to analyze an underlying index. Nevertheless, I was struck by the fact that out of the 25 BUY signals on our Trend Busters list this weekend, fully 23 of them are inverse or inverse leveraged ETFs. In other words, they have all broken above downward-sloping trend lines and are threatening to initiate a new upward trend. Here they are listed below: Symbol Name DPK DIREXION DAILY DEVELOPED MARKETS BEAR 3X SHARES EDZ DIREXION DAILY EMERGING MARKETS BEAR 3X SHARES ERY DIREXION DAILY ENERGY BEAR 3X SHARES FAZ DIREXION DAILY FINANCIAL BEAR 3X SHARES DRV DIREXION DAILY REAL ESTATE BEAR 3X SHARES TYP DIREXION DAILY TECHNOLOGY BEAR 3X SHARES SEF PROSHARES SHORT FINANCIALS RWM PROSHARES SHORT RUSSELL2000 SBB PROSHARES SHORT SMALLCAP600 SPXU PROSHARES ULTRAPRO SHORT S&P 500 SMN PROSHARES ULTRASHORT BASIC MATERIALS...

Saturday's Wall Street Journal has an article titled "Investors Pull $2.1 Billion out of Leveraged ETFs." What's going on? The article says assets in ETFs increased by $20.1 billion in August but declined in only two asset classes: leveraged and inverse ETFs. The article goes on to discuss how the Securities and Exchange Commission and the Financial Industry Regulatory Authority have issued warnings that leveraged ETFs may not be suitable for all investors. These warnings have been especially targeted at retail investors. The SEC and FINRA, however, aren't the only ones pointing fingers at leveraged ETFs. Let's see how many ambulance chasers have initiated class action lawsuits against the ProShares company: Gilman and Pastor LLP Files Class Action Lawsuit Against ProShares' UltraShort MSCI Emerging Markets ProShares Fund on Behalf of UltraShort Fund Investors Labaton Sucharow LLP Files Class Action Lawsuit Against ProShares' UltraShort Real Estate Pro...

In my semi-rant about leveraged ETFs from Monday, I mentioned that the 2X ETFs can be held for longer than one day, especially when volatility is moderate to low. This post takes a closer look at this proposition. I decided to take the worst case situation and look at the most maligned of the ProShares ETFs: SKF, the UltraShort Financial and its corresponding bullish ETF, the Ultra Financial, UYG. To compare results to the underlying index, I also included IYF, the iShares Financial ETF. To investigate performance in the presence of volatility I brought the VIX into the analysis. The following table shows how the performance of each ETF is related to the VIX by calculating the correlation factor. The closer the correlation gets to 1, the more closely the ETF tracks the VIX. The closer the correlation gets to -1, the more the ETF tracks the opposite moves of the VIX. VIX SKF IYF UYG Period Gain (Loss) Cor- relation Gain (Loss) Cor- relation Gain (Loss) Cor- relation G...

As more brokerages prevent their customers (read: individual investors) from trading leveraged ETFs, I am moved to question the motivation of these firms. Thus far, we have UBS, Edward Jones, LPL Financial and Ameriprise Financial all banning trading of ETFs from ProShares and Direxion. Moreover, the Massachusetts chief financial regulator has announced an investigation of leveraged ETFs. Further stirring the pot, FINRA issued a warning that these ETFs are not suitable for investors who hold them for longer than one day. If they are held longer than a day they would only be appropriate if "closely monitored by a financial professional." The evidence against leveraged ETFs -- The beef against these ETFs is that you can get the call on a sector or index correct and still lose money. The examples used over and over again are the ProShares UltraShort Financial ETF (SKF) and the ProShares UltraShort Real Estate ETF (SRS). Despite the financial and real estate sectors taking a dive...

The level of noise around leveraged ETFs has been rising lately. What's going on? Lately, there has been a lot of discussion related to leveraged ETFs and how some brokerages are no longer allowing clients to trade them. And, of course, there are a number of posts pointing out why these vehicles should be avoided (be sure to read the comments as there are plenty of investors who are not opposed to these ETFs at all). In the interest of being even-handed, we have also included a few posts that suggest why investors might want to use these ETFs. It has been nearly five months since the last time we presented a links post focused on ProShares ETFs but today we have an interesting and well-edited selection of articles. I highly recommend the post at TheStreet.com for a well-reasoned warning and a different take on the leveraged ETF dilemma. ETFGuide.com does a good job taking the other side of the argument. So check out the following link list and don't hesitate to click through to...

With the stock market seemingly melting up, I wanted to know which ProShares ETFs were generating the best technical signals. The list below shows those ProShares ETFs that are exhibiting strong upward trends according to DMI and Aroon analysis and also have their 20-day moving average above their 50-day moving average. Symbol Name Category DDM Ultra Dow30 Ultra Market Cap QLD Ultra QQQ Ultra Market Cap ROM Ultra Technology Ultra Sector UGE Ultra Consumer Goods Ultra Sector ULE Ultra Euro Ultra Currency UPW Ultra Utilities Ultra Sector USD Ultra Semiconductors Ultra Sector All of these are Ultra ETFs. In other words, they deliver 200% of the performance of their underlying index on a daily basis. For those of you who are looking for a little extra juice in your portfolio, these 2X ETFs are a good source. Unfortunately, after the big run-ups they have seen in the last two weeks, it is hard to recommend them as a BUY today. On the other hand, these ETFs represent sectors or styles on whi...

Markets are fluctuating and leveraged ETFs are gyrating. If you own any of these ETFs, have you examined your stop levels lately? Back in April I introduced the TradeRadar stop calculator . It emphasized the fact that leveraged ETF performance is driven by the action in an underlying index. It was pretty basic in that it translated movement in the underlying index into changes in the leveraged ETF but it required the user to determine the appropriate underlying index or ETF and to enter most recent prices as well as target stop levels. Major improvements -- I have now rectified some of the major weaknesses and made the calculator a lot easier to use. Here are some of the new features: All the ETFs from ProShares and Direxion are now listed in a drop down. Pick a leveraged ETF and the calculator automatically identifies the appropriate underlying index or ETF that is based on that index. The calculator retrieves the most recent prices for both the leveraged ETF and the underlying index...

Trading leveraged ETFs, ProShares or Direxion ETFs, for example, comes with a significant amount of risk, especially if the market begins moving against you. This is why advisers recommend using a stop loss order. Often referred to simply as a stop, it directs your brokerage to automatically sell a stock or ETF if it falls to a pre-determined level. This is intended to limit an investor's loss on an investment. There are essentially two kinds of stops: A hard stop that causes the stock to be sold if it hits a particular price. A trailing stop that causes a stock to be sold if it falls a particular percentage from the most recent high With leveraged ETFs it can sometimes be tricky setting stops. An investor must evaluate the underlying index and translate that evaluation into an appropriate stop for the leveraged ETF. This is necessary because the price action of the ETF is totally dependent on the performance of the underlying index. Some ETFs are leveraged 2X, such as the ProShare...

You may have noticed today that the ProShares UltraShort Real Estate ETF (SRS) was up strongly Monday (3/16/09), tacking on almost 16%. This is far in excess of the 4% that the UltraShort Financial ETF (SKF) rose. What gives? It could be that investors are beginning to realize that the situation in commercial real estate is becoming worse than what we have seen in residential real estate. The Fed provides the data from which we constructed the following chart. It contrasts the charge-off rates for residential real estate loans and commercial real estate loans. Whereas it looks like charge-offs in the residential sector are beginning to moderate, it appears that charge-offs in the commercial sector are really taking off, increasing rapidly and surpassing the rate for residential loans. As of the end of the 2008-Q4 there was no moderation at all in the slope of commercial loan charge-offs. Many financial institutions have seen their stock prices decimated when mortgage-backed securitie...

It has been over two months since the last time we presented a links post focused on ProShares ETFs. With markets plunging, the inverse ETFs are certainly prompting a lot of discussion, both pro and con. As usual, today's list is comprised mostly of posts from Seeking Alpha but we also have some from the Wall Street Journal, Forbes, MarketWatch, TradingMarkets.com, and CNBC. As always, I recommend that you click through to the authors own sites after reading the posts on the Seeking Alpha site. Thu, Mar 5 TBT Street Skids; Jobs Report Looms Thu, Mar 5 SKF AT&T, ProShares UltraShort Financials: Money Flow Leaders (T, SKF) Thu, Mar 5 YCL YCS Japanese Scandals Inadvertently Intervene to Soften Yen Thu, Mar 5 SKF Citigroup Breaks $1: 'We Need a Bolder Plan' to Fix Banks, Sonders Says Thu, Mar 5 SIJ SKF TradingMarkets 7 ETFs You Need to Know for Friday Thu, Mar 5 SKF Leveraged inverse ETFs for financials gorge on sell-off Thu, Mar 5 SKF Options Trader: Outlook for a Thrill-...

Last summer (June 2008) I wrote a post titled " ProShares ETFs - Why trading volume makes a difference ." Since then, there have been two situations that suggest it might be a good time to look at trading volume again: ProShares has created a half dozen new ETFs that weren't in our previous analysis and market conditions have taken a further turn for the worse with the S&P 500, for example, going from roughly 1325 to under 800. Below we present a table contrasting average daily volume in the year leading up to June 25, 2008 with average daily volume in the eight months since June 25, 2008. It is sorted in descending order based on the latest volume numbers. Symbol Name Avg Daily Volume prior to 6-25-08 Avg Daily Volume since 6-25-08 UYG Ultra Financials 3,778,258 112,176,547 SSO Ultra S&P500 2,368,347 56,212,929 SDS UltraShort S&P500 10,640,286 43,730,513 QID UltraShort QQQ 20,042,465 38,670,681 QLD Ultra QQQ 4,171,179 31,438,395 SKF UltraShort Financials 3,77...