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| Thursday, November 3, 2011
In a market environment where stocks have basically moved sideways for over a decade, even long-term "buy and hold" investors must open their minds to the idea of capturing profits in the near-term.
Today our ETF trading and investing expert Rick Pendergraft has some ideas to share with you. Specifically, Rick will discuss how investors can use inverse and leveraged ETFs to capture profits when the stock market is falling. Given the volatility we've experienced recently, I think you'll find this article timely and informative.
Ian Wyatt
Editor, Daily Profit
Whidbey Island, Washington
| | Use Inverse and Leveraged ETFs to Boost Returns In Volatile Markets
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The past year's market has been a tough one for long-term investors. We saw the S&P 500 locked in a trading range from mid-November through mid-July with 1,250 serving as the low and 1,350 as the top.
| This range subsequently gave way as the index dropped sharply during a three week period from July 22 through August 9, only to get stuck in another trading range. This one lasted from August 9 to October 21, with 1,100 serving as the low and 1,225 as the top.
What should long-term investors do during a period like this where trading ranges, not an extended trend, dominates? I suggest using inverse and leveraged ETFs.
Because of the choppiness of the market over the last year, the best way to benefit has been to play the swings. Now, you could use options in a time like this, but if you are not a fan of options, leveraged ETFs offer similar returns only without the time decay presented by options.
Before I get into how I use leveraged and inverse funds, an explanation of how these funds operate is in order.
Inverse funds are designed to move up when the underlying index moves down. These are bearish investment tools.
For instance, the S&P500 SPDR (NYSE: SPY) tracks the movement of the S&P 500 and it allows investors to experience the same returns as the index. The ProShares Short S&P500 Fund (NYSE: SH) is the inverse fund. If the S&P goes down one percent, the SH will go up approximately one percent.
Look at the chart below which tracks the SPY and the SH exchange traded funds over the last six months. The SH is the mirror image of the SPY. An investor that bought the SH would have done very well from April 29 through August 8. During this time, the SH gained almost 20 percent while the S&P lost 17.3 percent.
So how do I personally use inverse ETFs? ... [continue reading at WyattResearch.com]
To read more click here >>
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| | Dow Jones | 11,836.04 | +178.08 | (+1.53%) | | 
| | S&P 500 | 1,237.90 | +19.62 | (+1.61%) | | 
| | NASDAQ | 2,639.98 | +33.02 | (+1.27%) | |
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| |  | | Oil | 92,44 | +0.25 | (+0.27%) | |
| | Gold | 1,738.90 | +27.10 | (+1.58%) | |
| | Silver | 34.25 | +1.52 | (+4.64%) | |
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| Why Oil is a Good Indicator
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As you know, I'm a firm believer that oil prices are among the best indicators for the stock market. When oil prices rise, stocks do too. It's because they both react to the same catalyst: expectations about future growth.
Over the last few days, I've advised readers to watch the $90 a barrel level for oil. A break below $90 is a sign that investors are worried about future growth.
We saw this clearly in late summer. Oil began its decline after the disastrous Durable Goods report from July 28.
The inability to break above $90 in September was a good indicator that new lows were coming. And sure enough, as the talk of a double-dip recession reached a crescendo, oil was trading down into the upper-$70s.
Yesterday, after the semi-positive employment news, oil pushed higher as investors anticipated steady growth at the very least.
More telling to me, though, was the recovery from sub-$90 on Tuesday. That show of strength was not reflected in the stock market. In fact, the S&P 500 closed at its lows of the day.
Why did oil move higher? Couldn't we just get a read on the stock market? Or use gold as an indicator?
Oil is more useful as an indicator than even stocks because... [continue reading at WyattResearch.com]
To read more click here >>
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