Financials Are Still Lagging

Today, the U.S. stock market did some acrobat again. Overnight, Asian markets were obliterated (particularly Nikkei) partly because of stronger yen potentially hurting the recovery of Japanese exporters. But the U.S. market jumped on the news of M&A.

In the buoyant market with low volume, one sector seems still stuck in the range, and that's financials.

Here's the weekly 2-year chart of financial (unleveraged) ETF, XLF. From the top of May 2007 (financials topped way before the general market did in October-November 2007) to March 2009 low, it has yet to retrace up to 38.2% from the bottom, at $17.37 or over 15% from the current level ($15.08). The slow stochastics set at (60,3) to see the long-term trend is still below 50. CCI set at 233, again to see the long-term trend, is yet to go above -100.

I am still holding FAS that I bought back in March, when XLF was about $9. For XLF to go higher, it needs to hold the trendline, and at least cross over 89-MA - that's about $16.25. The next target would be the 38.2% retracement at $17.37. Around that area is very thin, so it could run up to the 50% retracement at $20.94 - that's close to 40% increase from here.

Well, that's a stretch. No way in hell it's going to reach that level. Or so it seems. But never say never. If XLF jumps 40%, that means FAS will jump 120% (in reality it would be less, maybe 100%). I wouldn't mind having FAS (I still have them) double from here...

But let me remind you this is just looking at the chart. If you read news, it sounds like this is the last sector you should be touching. So far I've been lucky. The technical levels that I'm watching hasn't been breached, and so far there is no reason to sell out longs (unless they are options, which I have a few).

(Why am I hosting the Kellog Raisin Bran ad? Thanks GoogleAds.)

Another Way To Look At FAZ, FAS, SKF, UYG

in other words, leveraged financials ETFs. These two charts are the area charts, plotting the weekly combined price of SKF (double short financial) and UYG (double long financial) for the top chart, and of FAZ (triple short financial) and FAS (triple long financial).



Even ignoring the spikes, SKF+UYG's current price level is less than 1/2 of December 08 level. FAZ+FAS's current price level is less than 1/3 of December 08 level. So, if you are not a day trader, the winning long-term trade for these leveraged ETFs since December 08 would have been to short ALL.

If it's any comfort, unleveraged financial ETF combo hasn't fared that well either. The weekly combined price of SEF (unleveraged financial) and XLF (unleveraged financial) for the same duration shows a decline of about 25%, mostly due to the decrease in SEF.

Leveraged Long ETFs May Not Be What You Think, Either

Danger of leveraged short ETFs has been discussed in this post, but here's more. The focus is on financial LONG ETFs.

XLF is un-leveraged, UYG is double long, FAS is triple long. Looking at their charts, you wouldn't be able to tell that, would you? XLF is almost back to the December level, while UYG is about half that, and FAS is about 1/3.

UYG has more than doubled since March low, and FAS more than tripled while XLF is slightly less than doubled. So if you were able to pick that bottom, good for you, you have bagged the huge gain. On the other hand, if you have been holding XLF since the beginning of the year and didn't sell into the dump in March, you are back to where you started. The same cannot be said for UYG and FAS.

Here's another set of charts, comparing FAS (triple long) and FAZ (triple short). Visually, in the bigger scheme of things, they both seem to be flat-lining. There are enough daily fluctuations for trades, but I'm now more convinced that they are indeed for short-term trades only.